Prototype-Funding as an Entrepreneurship Catalyst in Higher Education

Entrepreneurship and new business creation are one of the expected outcomes from public investments to higher education. In higher education, early-stage of new business creation is an uncertain business. Literature recognizes multiple kinds of uncertainties and many different strategies to clear them. Most funding at this stage is limited and mostly from publicly funded programs. The question asked in this paper is: To which commercialization activities should funding programs focus in order to maximize entrepreneurial outcomes? Based on sunk cost effect from psychology of human action we hypothize that funding targeting demo and prototype-building activities are more effective than funding for outsourced initial business case analyses and novelty searches. We introduce data from a regional early-stage funding program Draft, which had a change of funding principles after a few years of operation. We show that teams with university-born business ideas who joined the program with emphasis in demo and prototype building were 5 times more likely to found a company than teams that took part in the earlier version of the program with emphasis on initial business case analysis and novelty searches.