Am I a billionaire if a friend gives me $1000 for 0.0001% of my "company"?

Question

If my friend gives me a thousand dollars for 0.0001% of my "company", am I technically a Billionaire now?

Answer 1

The unspoken point behind your question is that people often talk about the value of companies in terms of their market capitalisation which is the price of one share times the number of shares. This methodology has obvious flaws - if all the holders wanted to sell at once the price would plummet, and if someone tried to buy all the shares at once the price would go up a lot. So there's no sense in which the company can actually be bought or sold for that valuation.

On the other hand, for publicly traded companies, the price of one share is at least set by some sort of equilibrium between market participants and you can generally expect people to sell when it goes too high and buy when it gets too low, based on some assessment they each make of the underlying value. So people will often consider that even a large block of shares is worth the current market price, and hence that it forms part of the net worth of someone who owns that block of shares.

The phenomenon that arose this year (2021) of so-called "meme" stocks like Gamestop are a good counter-example. Many of the market participants aren't necessarily acting on a rational assessment of the company's financial prospects, and hence many people would question the current price as a basis for an accurate valuation. But still, there is a market and one could probably sell a reasonable number of shares at the "current" price.

Private companies funded by venture capitalists are another good grey area: they are often valued based on the last funding round. Very uncertain and risky, but someone has made a rational assessment of the value at some point in time.

Your own hypothetical example is on much shakier ground still: no-one who is independent of you and acting rationally is likely to actually think what you sell is worth $1000. And anyone trying to assess the value independently is going to realise that. So in practice it's unlikely you'll actually be able to convince someone you are a billionaire on that basis.

Answer 2

The term "billionaire" is not a legal or technical term; it can mean whatever you want it to mean. Most people would define it as someone who owns at least $1 billion in assets.

If you own a company, and you convince one person to purchase 0.0001% of the company for $1000, you could argue that your company is worth $1 billion. Sure, call yourself a billionaire. :) However, that value is only an instantaneous value at that moment. Your company is only worth what people will pay for it now. If you don't have another person lined up to buy another share at $1000, then your company isn't really worth $1 billion.

Answer 3

If my friend gives me a thousand dollars for 0.0001% of my "company", am I technically a Billionaire now?

$1000 is definitely 0.0001% of $1Bn. You'd be a billionaire IF:

1. you own the other 99.9999% of the company, and
2. have the $1000 from your friend and
3. other people would pay -- and continue to pay -- just as much as your friend for shares. (If the next guy only wants to pay $100 for that 0.0001%, then the company is only worth $100M; this is the hazard of thinly-traded stocks.)

Step 3 is most important; otherwise, it's an exercise in vanity.

Answer 4

tl;dr– Someone has a strong claim to billionaire-status if they have immediate ownership/control of at least a billion-USD and no debts/liabilities. Others might claim billionaire-status with various caveats. It'd seem reasonable to reject sufficiently unreasonable arguments.

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Strict definition of billionaire and various approximations.

A reasonable definition of billionaire would be someone who could quickly-and-reliably produce at least 1-billion USD in cash while holding no debts/liabilities and breaking no laws.

The further someone's removed from meeting that definition, the weaker their claim to being a billionaire.

Examples of approximations of billionaires:

1. Very clearly billionaires:

   • Alice has no debts and owns a parcel of land with a vault containing 10-billion USD in cash, with adequate security such that their ownership of that property seems secure.

2. Pretty much billionaires:

   • Alice has no debts and a modest home. Alice is owed 10-billion USD by the US government, with strong expectation for delivery within 1 month.

   • Bob has no debts, 0.5-billion USD in cash, and a house that could probably sell for about 0.75-billion within a few months.

   • Charlie has no debts and 0.999-billion USD in cash.

   • Dave has no debts and a house that could probably sell for 1.5-billion USD within a few months.

   • Eliza has 2-billion USD in cash, though is currently liable for an amount that might reach up to about 1-billion USD.

3. Arguably billionaires:
   

   • Alice owns 50% of a publicly-traded company with a market-cap of 2-billion USD, projected for a stock-price that might be inflated.

   • Bob fully owns rights to something with royalties projected to be about 1-billion USD over the next 10-years, after time-discounting.

   • Charlie owns 1.25-billion USD in cash, but has 0.5-billion USD in liabilities due in a year.

   • Dave has no debts and 0.95-billion USD in cash.

   • Eliza has no debts and owns a cache of historical artwork appraised to 10-billion USD.

4. Probably not billionaires:

   • Alice has 1-billion USD in cash, but also 0.5-billion USD in debts.

   • Bob owns 1-billion USD in cash and has no debts, though they hid half of their cash in a safe buried underground in a location that was forgotten.

   • Charlie owns 1-billion USD of an asset, where the volume of that asset exceeds market-demand for it over 10 years.

   • Dave has no debts, but is owed 1-billion USD by creditors who're considered likely to default.

5. Very weak claims:

   • Alice owns 1-billion USD of an asset, as assessed by a very dubious source.

   • Bob owns 1-billion USD in cash that they then loaded onto a rocket and blasted on a course to Pluto.

   • Charlie invested 1-million-USD in a scheme advertised to them via an unsolicited telemarketing call, with an assurance of a 1000-fold return within a month.

   • After reading about impending colonization of Mars, Dave purchased half of the real-estate on Mars from a website claiming to sell real-estate on Mars 4 CHEEP.

   • Eliza has just wrote a 25-word poem and plans to sell copies of it for 1-USD each to everyone who can access the internet.

Anyway, the point's that folks might make claims about billionaire-status based on various caveats, assumptions, and approximations. As such it's kind of a fuzzy-qualifier when not meant strictly.

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Is someone a billionaire if they can sell a small portion of an asset for a similar portion of a billion-USD?

If someone claims billionaire-status on the basis of having sold x% of an asset for x% of a billion-USD, then presumably they're arguing that they could sell the remainder of that asset for the remainder of a billion-USD.

So, how plausible do you find that?

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Discussion: Why net-worth isn't necessarily simple.

A naive definition of billionaire might be: someone who has a net-worth of at least 1 billion USD.

The issue's that net-worth isn't necessarily a simple issue. Rather, we might consider assets with various risks, time-delays, liabilities, etc., meaning that if someone wanted to assign a specific numeric-value to their net-worth, it'd tend to be pretty subjective.

So for the question:

If my friend gives me a thousand dollars for 0.0001% of my "company", am I technically a Billionaire now?

It's not really a technical issue. Rather, folks might accept the claim that you're a billionaire to the extent that they believe that the prior trade plausibly established the value of the company as being at least about that. If they don't believe that that assessment follows, then presumably they wouldn't consider you a billionaire.

Answer 5

Other answers explain nicely why you (as a person) aren't a billionnaire, at least solely on this basis.

I will add a perspective from the point of view of company valuation, i.e. how much is a company worth (with who owns what part and what that means about their personal net worth an incidental consequence.)

A company is worth what someone would actually pay for it. Valuation is an exercise in estimating that, based on whatever evidence is available.

For a publicly-held company, all or most of whose shares are publicly traded, with decent liquidity, extrapolating from the share price of recently traded shares is pretty good evidence (though not perfect, as other answers have discussed). If you believe in some form of the efficient market hypothesis, that share price should not materially deviate from the best average belief of market participants as to value of the whole company.

For a privately held company, extrapolating from transactions for a fraction of the company is more fraught, since there is little liquidity, less information transparency, and such transactions occur only occasionally and so may reflect a materially different situation.

As a result, such "evidence" is of some but quite limited value, even if it reflects meaningful investments by people who can be trusted to have done some amount of due diligence. This frequently happens with startups, where say the founders may have raised, say $2 million in initial capital for a 20% stake of the company, but it's only on paper that might mean the company is actually worth $10 million. Especially if that $2 million has been spent and the idea is going nowhere, and the company is worth (close to) $0. More complex ownership structures make this more complicated, but the idea holds.

Where the investment is for a minimal stake, not an arm's length transaction, and may be intended to pump up the (apparent) value of the company, that "evidence" is of no value whatsoever.

Answer 6

No. You would need a net worth (assets minus liabilities) of $1 billion to be a billionaire. So unless you own the remaining 99.9999% and it is worth $999,998,000, then no. There are many ways to valuate a business but only a few that are accepted. In short, it's worth what it will sell for.

A different example: You and I buy a house jointly for $500k, you invest $499k for 99.9999% ownership and I invest $1k for 0.0001%.

Are you a billionaire? No.

Ignoring any other assets or liabilities, you are worth $499k.

Answer 7

Yes, if the market agrees with your friend.

No, if the market don't agree with your friend.

Answer 8

If that's all the equity you have, then you're not even a thousandaire, since your interest in the company is 99.9999% of a company worth $1,000, and your friend's equity holding in your company is just a tenth of a penny.

Answer 9

The answer is completely trivial,

No, because there is no liquidity.

I might say it's surprising the other answers are so long.