The signal of institutional governance in early‐stage financing for university spinoffs

Abstract Research Summary University spinoffs (USOs) translate scientific advancement to economic gains, but the role of the university's governance as a public or private institution is infrequently explored. With a novel dataset of academic entrepreneurs with National Science Foundation I‐Corps training, we examine institutional governance as a fundraising signal. We demonstrate how angel investors and venture capitalists (VCs) show a preference for private USOs. However, with different investment objectives, the groups conduct distinct sensemaking that weighs this cue differently. For angels, industry moderates the effect such that they prefer private university life science firms to public USOs. However, industry mediates the effect for VCs, who prefer life sciences to engineering. We describe this variation as mixed salience—when a signal yields differences in decision‐making for distinct audiences. Managerial Summary University spinoffs (USOs) are important for economic growth, but little is known about differences between USOs from public and private universities. We study how angel investors and venture capitalists (VCs) fund USOs of public and private schools. These two investor groups make funding decisions with different priorities and approaches. Both groups appear to prefer private universities. A deeper look reveals that angel investors prefer private university life science teams to the public university counterparts. On the other hand, VCs prefer life sciences teams to engineering teams—and life sciences teams are more likely to come from private schools. Evidently, the two investor audiences respond to the public/private distinction in different ways.