We provide a theoretical model for designing academic spin-off contracts between the university Technology Transfer Office (TTO), the researcher and the venture capitalist. The optimal contract entails the allocation of founder shares to the researcher to secure her participation in the venture, and it may also require the researcher to be financially involved in the project to give her incentives to provide effort.

We prove that, when this happens, there may be overinvestment in the spin-off. Finally, we show that when the TTO has more accurate information than the other two participants concerning the likelihood of success of the spin-off, the TTO will signal profitable projects by taking financial stakes. Hence, theTTO will end up owning both founder and financial shares in the venture.