Impact of Government Grants on Venture Capital Funding of Deep Technology University Spinoffs

Abstract

Because both scientific research and startups contribute strongly to major economic outcomes, university spinoffs (USOs) have been the subject of great interest and new policies. Unfortunately, prior research on early steps as firms coalesce and make their first decisions has been sparse, in part because of the difficulty of identifying USOs at the time that the firm launches. We use a dataset of participating academic entrepreneurs identified through the National Science Foundation Innovation Corps (``I-Corps'') program to study newly formed USOs. We find a firm formation rate of roughly 60\%; of those, roughly 2/3 apply for an SBIR award. We find that few of these firms migrate from the region of their home universities, negating the idea of a ``brain drain'' following experiential entrepreneurship training, and those that do move do not experience greater success in raising venture capital (VC). While a single SBIR award does not predict VC success, two or more SBIR awards generate an average marginal effect of approximately 30\% on the likelihood of raising venture capital.