In the British Dragon's Den format, entrepreneurs generally offer investors equity in exchange for funding.
Equity means an ownership stake in the business. During a pitch, an entrepreneur usually requests a specific amount of money and states the percentage of the company offered. The Dragons use the figures, together with sales and profit information, to assess the implied valuation and potential return.
This structure distinguishes the programme from a loan application. A Dragon who invests for equity becomes a part-owner rather than simply lending money at an agreed interest rate. Some negotiations may involve changing the percentage, combining Dragons or adding conditions.
The term “equity” is sometimes confused with profit or revenue. Revenue is money earned from sales, while profit is what remains after relevant costs. Equity is ownership. The exact agreement shown on television may also be revised or withdrawn after due diligence.