Public Support and VC Financing in Academic Startups

Research Summary

We investigate public support and venture capital (VC) investment in academic startups. Government support may enable follow-on investment by providing a quality signal to investors. This signal is especially important for academic startups, which face large funding gaps due to their complexity, cutting-edge nature, and uncertainty regarding the founders' management capabilities and commitment. Using a panel of startups in Germany, our analyses confirm that academic startups are more likely to obtain follow-on VC investment after receiving public support than non-academic startups. Further, this effect is limited in time, lasts longer for academic startups, is concentrated in high-tech manufacturing firms, and is stronger for investments from business angels. Our findings have implications for policymakers seeking to foster academic entrepreneurship through policy programs and VC investment.

Managerial Summary

Obtaining seed and growth capital is essential for potentially highly innovative startups. We show that startups that obtain public support are more likely to receive VC funding and that this effect is stronger for startups with academic founders, approximately twice as large. We further show that this benefit is limited in time, concentrated in the high-tech manufacturing industry, and more salient for business angel financing than for investment by independent VC funds or corporate VCs. For founders of academic startups, our results imply that acquiring public support might enhance the chances of attracting follow-on financing.

Berger, Marius, Hanna Hottenrott, Maikel Pellens and Maud Thys (2025), Public Support and VC Financing in Academic Startups, Strategic Entrepreneurship Journal