equity
Equity is the ownership left over after debts are paid, whether in a company you built or a house you are still paying for.
In plain English
Equity is what is genuinely yours once everyone else has been paid.
In a house, it is the value of the property minus what you still owe on the mortgage. A ₦50 million home with a ₦30 million loan against it means you hold ₦20 million of equity. The house is not yours. That portion of it is.
In a company, it is ownership. Shares are equity. When an investor puts money into a business in exchange for a percentage, they have bought equity, and they now own a slice of everything the business has and everything it will earn.
This is why founders must understand it before they raise money. Selling 30 percent of your business is not a loan you repay. It is permanent. That person owns 30 percent of every profit, forever, and of whatever the company eventually sells for.
Debt costs you money. Equity costs you ownership. Debt ends when you repay it. Equity does not end at all.
Which is why the cheapest money is almost always your own, and why founders who give away equity early usually regret it later.
You raise ₦20 million by selling 25 percent of your business. Eight years later the company sells for ₦2 billion. That investor receives ₦500 million for their ₦20 million. It was the right deal on the day. It was also very expensive.
Questions people ask
What is home equity?
The value of your property minus the mortgage still outstanding. It grows as you repay and as the property rises in value.
Is equity better than debt for a business?
It depends. Equity brings no repayments and often brings expertise, but it is permanent and expensive if you succeed. Debt is cheaper if you can service it and fatal if you cannot.
What is dilution?
When new shares are issued, everyone's existing percentage shrinks. You can own a smaller slice of a much larger cake, which is fine, or a smaller slice of the same cake, which is not.
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