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Resolving Tensions between Heterogeneous Investors in a Startup

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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Resolving Tensions between Heterogeneous Investors in a Startup. / Chen, Shiqi; Lambrecht , Bart.
In: Management Science, Vol. 71, No. 3, 01.03.2025, p. 2678-2695.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Chen, S & Lambrecht , B 2025, 'Resolving Tensions between Heterogeneous Investors in a Startup', Management Science, vol. 71, no. 3, pp. 2678-2695. https://doi.org/10.1287/mnsc.2022.01724

APA

Chen, S., & Lambrecht , B. (2025). Resolving Tensions between Heterogeneous Investors in a Startup. Management Science, 71(3), 2678-2695. https://doi.org/10.1287/mnsc.2022.01724

Vancouver

Chen S, Lambrecht B. Resolving Tensions between Heterogeneous Investors in a Startup. Management Science. 2025 Mar 1;71(3):2678-2695. Epub 2024 Jun 13. doi: 10.1287/mnsc.2022.01724

Author

Chen, Shiqi ; Lambrecht , Bart. / Resolving Tensions between Heterogeneous Investors in a Startup. In: Management Science. 2025 ; Vol. 71, No. 3. pp. 2678-2695.

Bibtex

@article{22c6d7a389e545b8b041d67f52affe00,
title = "Resolving Tensions between Heterogeneous Investors in a Startup",
abstract = "Legal scholars highlight the tensions that exist between different classes of shareholders in startups. We model a startup owned by undiversified investors with heterogeneous capital contributions and risk preferences. A social planner runs the firm on behalf of all investors. We compare investors' expected utility with a hypothetical first-best decentralized benchmark. The startup's optimal investment policy is pro-cyclical and a time-varying weighted average of shareholders' optimal investment policies. The optimal contracts issued to investors are tailor-made, interdependent, and include equity claims resembling preferred stock with heterogeneous payout caps, leading to a complex capitalization table as more investors join the startup.",
keywords = "investment, payout, startup, risk preferences, group policy",
author = "Shiqi Chen and Bart Lambrecht",
year = "2025",
month = mar,
day = "1",
doi = "10.1287/mnsc.2022.01724",
language = "English",
volume = "71",
pages = "2678--2695",
journal = "Management Science",
issn = "0025-1909",
publisher = "INFORMS Inst.for Operations Res.and the Management Sciences",
number = "3",

}

RIS

TY - JOUR

T1 - Resolving Tensions between Heterogeneous Investors in a Startup

AU - Chen, Shiqi

AU - Lambrecht , Bart

PY - 2025/3/1

Y1 - 2025/3/1

N2 - Legal scholars highlight the tensions that exist between different classes of shareholders in startups. We model a startup owned by undiversified investors with heterogeneous capital contributions and risk preferences. A social planner runs the firm on behalf of all investors. We compare investors' expected utility with a hypothetical first-best decentralized benchmark. The startup's optimal investment policy is pro-cyclical and a time-varying weighted average of shareholders' optimal investment policies. The optimal contracts issued to investors are tailor-made, interdependent, and include equity claims resembling preferred stock with heterogeneous payout caps, leading to a complex capitalization table as more investors join the startup.

AB - Legal scholars highlight the tensions that exist between different classes of shareholders in startups. We model a startup owned by undiversified investors with heterogeneous capital contributions and risk preferences. A social planner runs the firm on behalf of all investors. We compare investors' expected utility with a hypothetical first-best decentralized benchmark. The startup's optimal investment policy is pro-cyclical and a time-varying weighted average of shareholders' optimal investment policies. The optimal contracts issued to investors are tailor-made, interdependent, and include equity claims resembling preferred stock with heterogeneous payout caps, leading to a complex capitalization table as more investors join the startup.

KW - investment

KW - payout

KW - startup

KW - risk preferences

KW - group policy

U2 - 10.1287/mnsc.2022.01724

DO - 10.1287/mnsc.2022.01724

M3 - Journal article

VL - 71

SP - 2678

EP - 2695

JO - Management Science

JF - Management Science

SN - 0025-1909

IS - 3

ER -