Raising Capital from Heterogeneous Investors

Joint with Ilan Kremer and Eyal Winter

Read more about Marina Halac

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Abstract: A firm raises capital from heterogeneous investors to fund a project. The project succeeds only if the capital raised exceeds an initially unknown threshold, and the firm offers payments contingent on success. We study the firm's optimal unique-implementation scheme, namely the scheme that guarantees the firm the maximum feasible payoff. This scheme refunds each investor her capital if the project fails to be implemented. Under success, however, net returns differ across investors. We show that if the distribution of the investment threshold is log-concave, larger investors receive higher net returns. Moreover, higher dispersion in investor size raises the firm's payoff.