SDG 9: Industry, Innovation and Infrastructure | SDG 8: Decent Work and Economic Growth | SDG 4: Quality Education
Ministry of Science and Technology | DST
OECD working paper How do non-equity instruments shape the financing paths of academic start-ups? investigates how non-equity funding instruments—such as grants and assistance—influence the financing paths of academic start-ups founded by PhD holders. While these start-ups are 1.5 percentage points more likely to receive assistance and 2.3 percentage points more likely to receive grants than non-academic ones, they face a significant “follow-on funding gap” in subsequent rounds.
The study reveals that while grants are crucial for initial innovation, they can lead to “path dependency,” making start-ups less likely to transition to private equity. In contrast, assistance programs like incubators and accelerators are more effective at facilitating the transition to venture capital by providing the business skills and industry connections that academic founders often lack. With academic start-ups representing 10% of new ventures in OECD countries, primarily in high-tech sectors like Health (25%) and Energy (16%), the report emphasizes the need for a balanced funding environment that pairs financial grants with mentorship-based support.
Because academic start-ups often pursue complex, science-based innovations far from market, reliance on grant-heavy early support (with limited Government Venture Capital (GovVC) participation) tends to delay commercial validation and equity uptake, reinforcing the observed follow-on funding gap.
Key Pillars of Academic Start-Up Financing
Non-Equity Path Dependency: Initial reliance on grants can “lock” start-ups into non-equity modalities, reducing the likelihood of transitioning to private Venture Capital (VC).
Assistance as a VC Bridge: Accelerators and incubators are more effective than grants at improving the chances of securing follow-on equity funding.
Sectoral Concentration: Academic ventures are heavily overrepresented in deep-tech fields like Health and ERS (Energy, Resources, Sustainability).
Skill Complementarity: Founding teams with a mix of PhD researchers and MBA holders (currently only 10%) secure funding faster and exhibit stronger growth.
Follow-On Funding Gap: Despite having higher patent output, academic start-ups raise lower amounts in subsequent rounds compared to non-academic peers.
What is “Path Dependency” in Startup Funding? Path dependency refers to a situation where a start-up’s initial choice of funding modality significantly limits its future financing options. For academic start-ups, receiving an initial grant often makes them more likely to continue seeking grants rather than transitioning to private equity. This “grant trap” occurs because the metrics required to win a grant (scientific novelty) differ from those needed to attract venture capital (commercial scalability). To break this cycle, policymakers are encouraged to pair grants with “assistance instruments” that provide the business networks and market-readiness coaching needed to make the venture attractive to private investors.
Policy Relevance
For India, the OECD findings represent a transition from “Grant-Based Research” to “Equity-Linked Deep-Tech,” essential for scaling its student research projects and national science missions.
Standardizing “Assistance-First” Models: Implementing the OECD’s “assistance-to-equity” bridge acts as a “standard maker” move for India’s DST and NIDHI-SSS programs, ensuring that scientific breakthroughs don’t stall after the first grant.
Bypassing the MBA Gap: Since only 10% of academic start-ups have an MBA founder, the IndiaAI Mission should focus on mandatory “Business Mentorship” for PhD founders to improve their hazard rate for equity funding.
Operationalizing Health-Tech Patents: With 25% of academic start-ups in the health sector, India can leverage its 5.8x growth in patents to create specialized “Assistance Hubs” for medical devices and biotech.
Federal Incubation Scaling: The high success of assistance programs (incubators/accelerators) in the OECD supports India’s push for “Districts as Export Hubs,” where local academic talent is mentored by industry veterans.
Implementation Fidelity via Team Diversity: Encouraging larger, more diverse founding teams (average of 2.8 founders compared to 1.7) can help Indian academic start-ups secure funding faster, as evidenced by findings from the global sample.
Follow the full report here: OECD: Non-Equity Instruments and Academic Start-Up Financing Paths 2026