In most cases it would be equity, but it all depends on the terms of the investors' investments. Their investments could be debt, equity, convertible debt that converts to equity after a certain time period or performance criteria are achieved, etc.

As you described it, the investor's investment would typically be structured as equity so that the debt:equity ratio of the company is 50:50 at the time of the acquisition. However, as Seth said, it depends on the structure of the investor's investment. If they receive stock for their $1M, then it is equity. If the structure is, however, a structure such as convertible notes, then it would be booked as debt until it is converted into equity.