The UK Dragon's Den investment model in which entrepreneurs exchange ownership for funding is equity.
In an equity deal, an investor provides capital in return for a percentage ownership stake in the business. The entrepreneur does not normally repay the money as a conventional loan; instead, the Dragon shares in the company's future value and may benefit from dividends or a later sale.
This structure explains why pitches focus heavily on valuation. If an entrepreneur asks for a certain amount for a stated percentage, the implied valuation can be calculated from those two figures. The Dragons also assess whether the proposed stake reflects the business's risks and prospects.
Equity is not the same as a royalty, which usually gives an investor a share of sales or revenue. Nor is it a franchise, which is a method of expanding a business through licensed operators. Dragon's Den deals can include negotiation, but the core ownership concept is equity.