Signaling in academic ventures: the role of technology transfer offices and university funds

University spinoffs, an important subset of high-tech start-up companies, operate in a context characterized by marked information asymmetries that limit their chances of obtaining financing. Given the uncertainty and imperfect information that characterize these investment opportunities, signals about their potential value deserve further attention. We investigate the relationship between the main stakeholders involved in the process of creating a university spinoff-that is, the academic founders, the university technology-transfer office, and private investors-focusing on the role of public grants as effective signals that attract private venture capital (VC) funding. Using the database of all spinoff companies established to exploit inventions assigned to the University of Michigan from 1999 to 2010, we determine how the funds provided through the university technology-transfer office influence VC follow-on funding and consequent spinoff growth, controlling for the spinoff's technology, the founders' human capital, and the network's resources. The empirical results support a signaling effect of the commercialization funds provided by the university and suggest an indirect impact on the growth of the spinoff's sales through the mediating effect of VC financing.