An entrepreneur offering £100,000 for a £500,000 valuation is offering 20% of the company.
The calculation is investment divided by valuation: £100,000 ÷ £500,000 = 0.20, or 20%. In a Dragon's Den pitch, entrepreneurs commonly state both the amount they want and the equity they are prepared to give up, allowing the implied valuation to be calculated.
This is a valuation exercise rather than a guarantee that a dragon will accept the proposal. Investors may challenge sales figures, costs, intellectual property, market size or the entrepreneur’s estimate of future growth. A deal agreed in the studio may also be subject to later due diligence.
The most common mistake is to calculate the percentage using the amount retained by the entrepreneur. The requested investment represents one-fifth of the stated £500,000 valuation, so the offered stake is 20%.