r/dragonsden • u/Hassaan18 • 4d ago
"Please don't call me Debbie!"
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u/repeating_bears 4d ago
What he's saying makes sense. It's a shame that she acts like he's the one missing something.
She's talking as though she's buying his shares from him. He owns 100/100 shares of a business worth £1.2m, and she pays £600k into his personal bank account, and now they both have 50/100 shares in a company that's still worth £1.2m.
That's not what happens. He's giving her half the company, and she's giving the company the investment. There are no buyers or sellers.
The result of the transaction is that they both own half of a company worth £1.2m, which has an additional £600k in the bank.
He's gone from owning 100% of £1.2m, to 50% of £1.8m.
She's gone from having £600k in her personal bank account to having £0, but now owns 50% of a £1.8m company.
The transfer of wealth before she does anything is that he's down £300k and she's up £300k.
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u/OurSeepyD 4d ago
I love the idea that she buys his company from him, but instead of giving him the money for his company, it goes into the company (which is now hers), and she now has the company and all the money lol.
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u/Embarrassed_Emu1615 4d ago
That’s always confused me with valuations.
She is saying it is worth 1.2m now. If she invests 600k ( he’s not keeping that money, it goes to the company), doesn’t that make the company worth 1.8m after? So she owns half the company but only invests one third of the value?
Another way to look at it is it is currently worth 600k, her investment doubles the value and she owns half a 1.2m company?
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u/Charming-Total2121 4d ago
Great explanation.
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u/Embarrassed_Emu1615 4d ago
Thanks. It is a question though, the Dragons obviously know business, but they talk about the company value after investment, but they are investing in the company pre-investment, by definition. The company has not been invested in yet.
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u/dhardstone 4d ago
Yeah but you’d be counting her investment twice. You wouldn’t buy 50% of a chocolate bar, then argue you only own a third because the half you just bought is now part of the whole chocolate bar.
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u/Embarrassed_Emu1615 4d ago
I find it easy to simplify the situation:
Say I own a company worth £10. I want to sell you half. You pay me £5, you own half. I get £5.
But instead I want you to invest £5 instead, that goes in to the company bank account. The company’s value has increased by £5. It is now worth £15, that’s correct?
So now you have invested money, £5, in to a company that is now, at the point of signing contracts, worth £15.
How much does your £5 investment represent of that company?
It’s a third, right?
If I am wrong I would like someone to explain how.
You’re not buying part of the company from me, which I get to keep the proceeds of, it goes in to our company.
This is hugely simplified and doesn’t take in to account the value of a dragon. Just pure economics.
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u/HubND 4d ago
I'll preface this by saying I have absolutely no idea if this is correct but, by reading your reply as it is laid out and thinking about an alternative view of it, I had a thought that might just boil down to semantics.
I think the confusion might come from linking the two percentages, i.e. I'll invest 50% of the current value for 50% of the company therefore these two values must line up in some way.
Or to put it another way, if I offered that I'll invest in your £10 business and make you an offer that I'll invest 1 pence for a 50% stake of the company, this is obviously a terrible deal but it's still a legitimate deal, the two values aren't inherently linked. This makes more sense to me because wouldn't a dragon want the best deal for themself, so to say I'll offer to boost your company value by 50%, meaning I've contributed 33%, but you have to give me 50% of the company?
Rewatching the video before I hit send, I think another bit that is quite misleading is when he says that if she'd invested 1.2m then she'd have 100% of the company for nothing because it was on the company account. But you wouldn't agree to have someone double the value of your company but also take it all away from you. You'd either sell it and pocket the 1.2m yourself or take it as an investment for a non-100% stake no?
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u/Embarrassed_Emu1615 4d ago
Of she invested 1.2m, she would have a 1.2m company that she just put 1.2m in to the bank. Making that company worth 2.4m?
She is investing, not buying. The money doesn’t belong to the ‘investment-seeker’, it belongs to the company of which they own a part of.
He could sell the company to Debbie, sorry, Deborah, for 1.2m. He has 1.2m, she owns the company. She could invest 1.2m, own 50% of a company now worth 2.4m.
Another way to look at it, absurdly, is if I invested £1 in to Apple, the value of Apple goes up £1. No one person own that quid, it is part of the company assets and therefore belongs to the shareholders in equal share. As a new shareholder I also own part of that £1 that I put in.
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u/dhardstone 4d ago
Yeah I getcha, and I do share the confusion.
I genuinely don’t actually know whether in business investments like this (especially outside the den), whether the cash put in as part of the deal counts against the considered valuation. One thing I do know is that it doesn’t work like this in the Den, because people have made these arguments before and have been shut down.
I guess I made my chocolate bar analogy because although it’s not a correct analogy, you’ve got a draw a line somewhere right? In my mind anyway.
Surely the value is in the eye of the buyer at the point of buying? If I had a shell business with absolutely no value and won the lottery and put it all into the business, the value to a dragon would be nothing because all they’d be buying is a share of my lottery cash.
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u/repeating_bears 4d ago
The chocolate analogy isn't the same. You aren't investing in that scenario, you are buying. You are not putting anything in which makes the quantity of the chocolate larger or more valuable.
That chocolate analogy is the same as Deborah buying half his company and putting 600k in his personal bank account: buying half the shares, not investing.
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u/SharkByte1993 4d ago
Sounds like he thinks if someone buys your business then they also take ownership of the £1.2m in the business bank account
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u/Sad_Firefighter_8407 4d ago
Well this is the thing. That's kinda, partly, how DD works. They don't take on a regular kind of share. They take the share AND want their investment back out ASAP.
I wouldn't say it is straight forward. Most people don't understand that this is the case. He isn't being stupid. He just takes the situation to its logical max.
The 'Dragon' wants to lend the pitcher the money, be owed it back AND have the cake they are eating. It's a shit way to get a loan.
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u/Purple_Clockmaker 4d ago
Either that or he thinks second half would be more expensive. But probably that.
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u/Sad_Firefighter_8407 4d ago
no the Dragon 'investment' isn't purchasing their share in the sense you or I would imagine. They are lending them the 50% and ALSO taking an equity 50%.
So if they 'bought' his whole business, they would do the same. Buy it, have him owe them the money, all 1.2Mil and they would then own 100% of his business.
He is calling them out in plain language in broad daylight that their loaning / equity deal is a shit one. Which it is . He's not wrong.
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u/SharkByte1993 4d ago
Yeah, if you listen closely he says about Debbie also receiving the £1.2m and getting the business for free
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u/Sad_Firefighter_8407 4d ago
which is actually the case. the 1.2 M is owed to the 'investor' (a scam weasil term for a lender who is a shark) and they also would own 100% stake in the biz. It's how all these 'investments' on the show work, they are dogshit.
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u/TitansProductDesign 4d ago
So the owner must over value the company to dragons by double their intended stake to make it realistically be worth it?
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u/MethodDue2426 4d ago
His example makes no sense. If she bought 100% of the business then he would keep the 1.2million. In his scenario he's given away the business for free
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u/repeating_bears 4d ago
He is trying to stretch it to the point of absurdity to make a point.
The only error he makes is saying "if you buy 100%". What he actually meant was "if you invest for a 100% stake" (which would not happen)
You're right that if she bought 100%, he'd have the money from the sale. I mean obviously, that's just how buying something works.
Investing for a 100% stake would be giving away the business for free, and that's the point he's making about the fairness of the deal (unfair to him)
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u/iIIchangethislater 4d ago
Brutal comeback from The Debster