The truth is equity for a private company should be regarded as part of a deal; it's a tie-in to ensure that all the stakeholders have an interest in the company increasing in value. This leads to an interesting corollary; the only people with a share of the equity should be those contributing to growth in value. "Selling" equity (and I like that word as little as I like "giving" in this context) is an expensive way of raising money. In terms of the value at a typical "exit", venture capital is twelve times more expensive than funding from profit. (Thanks to Commercial Catalyst for their work in establishing that figure.) In other words, any investor should be bringing much, much more than money to the table, or they're poor value. They need to have expertise, experience and contacts that can all be used to increase the worth of the business they've bought into.
This is why the dragons on "Dragon's Den" can lend such help to companies in the fields of office supplies, hospitality, recruitment, retail and leisure businesses - but are all less at home in areas of innovative engineering, especially in business to business applications. The dragons simply don't have experience in that area, and realise it; there is no point in them just "buying" equity, and assuming that the value will increase without them having to help. If such passive investment was all that was required, there are cheaper sources of funding.
Effective investors will only invest in early stage companies if they can themselves improve the odds of that company succeeding. Money alone is not enough.
So the equity the dragons have in the company has not been given, or even sold to them; it is a line to bind them to the enterprise, and ensure they have a vested interest in helping it succeed.
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