What is Equity in Shark Tank India?

Shark Tank India has become one of the most popular business reality shows in India. Aspiring entrepreneurs pitch their business ideas to a panel of successful investors or “sharks” in the hope of securing an investment. One of the most common terms thrown around on the show is “equity”. But what exactly does it mean when a shark asks for 30% equity in exchange for investing in a business?

What is Equity?

Equity refers to the ownership interest in a company. When you own equity in a company, you own a portion or percentage of that business. Equity represents your claim on the company’s assets and earnings.

For example, if you own 50% of a company’s equity, you own 50% of that company and are entitled to 50% of its profits. Equity is represented by shares. When you own shares of a company’s stock, you own equity in that business.

Why Do Investors Want Equity?

On Shark Tank India, the investors provide capital to the entrepreneurs in exchange for equity in their companies. Equity allows the sharks to share in the potential success of the businesses they invest in.

If the company grows and becomes more valuable, the shares the investors own become more valuable too. The investors can sell their equity stake for a profit or collect dividends if the company pays them out. Equity gives investors the opportunity to earn strong returns on their capital if the business succeeds.

How Much Equity Do Sharks Get?

The amount of equity the Shark Tank investors demand depends on how much money they invest, the valuation of the business, and their negotiations with the entrepreneurs. The sharks aim to get the biggest equity stake possible for their investment dollars.

A common starting point is to divide investment by valuation to determine equity percentage. For example, if a business is valued at ₹1 crore and a shark invests ₹30 lakhs, the simple maths would mean the shark gets 30% equity (30 / 100 = 30%).

But the final equity stake also accounts for the potential value of the business in the future. So sharks might demand 40-50% equity or even higher for investing in a business they think has a lot of growth potential ahead.

What Happens When Equity is Diluted?

Equity dilution refers to a reduction in the ownership percentage of existing shareholders when more shares are issued. This often happens when a company raises additional capital by selling more equity.

For example, if a shark owns 30% of a business, and the entrepreneur sells 20% new equity to another investor, the shark’s stake is diluted to 25% (30 / 120).

Dilution is a risk of equity financing that investors have to consider. Shark Tank investors try to mitigate the risk of excessive dilution by requesting anti-dilution protections in their investment terms. This gives them certain rights if the entrepreneur dilutes their equity in the future.

Does Equity Entitle Investors to Control?

Equity ownership does not necessarily give an investor full control over the business. Control is determined by the equity amount, type of shares issued, contractual rights, and corporate governance rules.

For instance, a shark with 30% equity would not have full control over the company like the majority owners. But they can influence major decisions as a minority stakeholder. Elements like board seats and voting rights determine the degree of control.

Conclusion

Equity is a key concept in Shark Tank negotiations. The investors are willing to provide capital to aspiring entrepreneurs in exchange for equity stakes that give them shared ownership in the businesses. Equity provides potential for financial gains if the company succeeds. The higher the equity, the more the sharks share in future profits and growth.

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