Actually, public investors will start with 40% equity until their initial investments have been paid of.
Nope you're wrong. It's 20% equity (equity is the term used to describe ownership) with 40% of revenue (at the discretion of the owner). So investors fund the start-up at 100% of required capital and own 20 % of the company and MAY get 40 % of the revenue (if and when there ever is any after paying his friends salaries etc.)
These terms do not give potential investors an opportunity to share in the upside of the company - even if the venture were successful.