Abstract
This paper examines the relationship between a venture capitalist, the founder of a firm and the investors that join in at the cash out stage. The paper characterizes the optimal contracts among the players and the equilibrium of the game. Next the study examines the signaling aspects of the game. The paper also analyzes the free-rider behavior of the founder and investors and the consequent lack of efficiency.
Keywords: Venture Capitalists, Founders, Investors, Game Theory, Optimal Contracts, Equilibrium, Signaling, , Free Riders