Why the Best Deals Are Like Prisoner’s Dilemmas
Game Theory in Private Markets
In venture capital, every major decision—from deal selection to follow-on funding—is a high-stakes game. Founders, VCs, and LPs (Limited Partners) all act in their own self-interest, yet the best outcomes emerge when cooperation outweighs competition. This is where game theory, the mathematical study of strategic decision-making, becomes invaluable.
One of the most famous game theory models, the Prisoner’s Dilemma, perfectly mirrors the tensions in private markets: If everyone cooperates, the group benefits—but if one player defects, they can gain at others’ expense. So how does this apply to LPs?
