Abstract
We analyze early-venture fundraising from dispersed, endogenously informed investors. An entrepreneur chooses a payoff-maximizing offering, and investors communicate their information by either contributing capital or abstaining. The entrepreneur uses the information conveyed by fundraising amounts to decide whether or not to undertake a risky venture. His decision threshold hedges investors against bad projects, creating a “loser’s blessing” that encourages contributing without information. Making the offering less attractive to investors mitigates the loser’s blessing but can give rise to a winner’s curse. Both tensions reduce financing efficiency.
Original language | English (US) |
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Pages (from-to) | 3975-4023 |
Number of pages | 49 |
Journal | Review of Financial Studies |
Volume | 33 |
Issue number | 9 |
DOIs | |
State | Published - Sep 1 2020 |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics