Public support and VC financing in academic startups

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.