A prisoner's dilemma approach to entrepreneur-venture capitalist relationships

Abstract

New business startups with venture capital backing depend on mutual cooperation between entrepreneurs and venture capitalists, but little is known about what makes these relationships work. The present article considers the implicit similarities between entrepreneur-venture capitalist relationships and the Prisoner's Dilemma framework, using this paradigm to develop a conceptual model of entrepreneurs' and venture capitalists' decisions to cooperate. The model is used to generate a number of testable propositions concerning long-term cooperation between entrepreneurs and venture capitalists. Implications of the model for researchers, entrepreneurs, and venture capitalists are discussed, and the paper concludes by examining implications of the entrepreneur-venture capitalist context for the traditional Prisoner's Dilemma framework.