Biotech funding when venture capital turns selective: routes for CEOs

PitchBook's biopharma VC analysis, reported by BioSpace, records $33.8 billion invested across 1,171 deals in 2025, against 1,091 deals and $31.9 billion in 2024. Both totals sit well below 2021, when $55.7 billion was invested across just 1,039 deals. After a prolonged contraction, PitchBook describes the current level as a possible new normal and expects a continued, albeit disciplined, recovery in 2026.

Behind the headline, the distribution has shifted. Only 32% of VC went to early-stage startups, compared with over 40% in the pandemic years of 2020 to 2022. Median deal value rose to $26.6 million from $19.9 million in 2024. Money is concentrating in companies with later-stage programmes ready to move into the clinic, and a pre-revenue CEO with an early asset is competing for a smaller share of the pool.

Exits provide context for investor appetite. PitchBook counted 79 biopharma exits worth $35.5 billion in 2025, against 98 exits worth $33.3 billion in 2024. Fewer exits at a higher aggregate value mean investors are recycling capital more slowly, and they will therefore be more demanding about how each investment can reach liquidity. A story built around a clear exit route will be better received than one that relies on a generic hope for an IPO.

What to do: ask honestly which of the two groups you belong to. If your asset is early, assume equity rounds will be smaller, slower and more tranche-based than the 2021 template, and build the runway plan on that basis. If you are later stage, the market is open for you but investors will expect dated, milestone-linked data and a credible route to the next financing event.

Investor behaviour explains the shape of the numbers. Many generalist funds that entered biotech in 2020 and 2021 have retreated, leaving specialist funds that favour concentrated bets. Specialists want to see a differentiated mechanism, a clear development path and a management team that has delivered before. They often prefer to lead rounds of a size that fully funds the next inflection point, rather than spread capital across many small positions, which is consistent with the rise in median deal value. For founders, this means fewer meetings and higher stakes in each one. Preparation, including a rehearsed answer to every diligence question on the data, now matters more than the breadth of the investor list.

It is worth adding that the structure of rounds has also changed. Tranched financings, where a portion of capital is released against a defined milestone, are used more often, and they transfer risk from the investor to the company. A CEO should model what the company does if a milestone is delayed and the second tranche is not released, and negotiate objective, measurable conditions rather than discretionary ones. Poorly defined milestones are a frequent source of later disputes between founders and investors.

EY's 2026 Beyond Borders report puts biotech financing at $68.5 billion in 2025, up 11% from 2024. Fundraising by companies outside the industry's commercial leaders was $58.9 billion. Venture capital, within that, was $20.6 billion, skewed toward late-stage deals, which climbed to $10 billion across 254 rounds. A further $4.3 billion was raised in venture in the first quarter of 2026.

The conclusion for a pre-revenue CEO is that venture is one source among several, and for early-stage companies not the largest. Follow-on financings, which EY says were a particular source of concern in 2024, rebounded to 34%. Public market investors, strategic partners and structured-credit providers all took meaningful roles. A capital plan that assumes the next step is always a venture round is working from an incomplete map.

EY also describes an industry that is fundamentally strong but seeks balance amid continued uncertainty. The IPO market declined by about 47% compared with 2024, a reminder that public-market exit is not a dependable assumption. M&A deal value reached $99.7 billion in 2025, with 36% of it falling in the first quarter, which shows that acquirers are active and willing to buy de-risked assets.

What to do: build a table of every realistic capital source by stage: grants, partnership upfronts, royalty and structured finance, venture, crossover rounds and the public markets. For each, note typical size, timeline, diligence requirements and conditions. This exercise usually shows two or three sources that have not been tested and that could extend runway by several quarters.

It also helps to separate the capital markets signal from the private-company reality. EY's headline is positive, but the report is explicit that financing was drawn disproportionately from late-stage deals and from larger, established companies. A seed-stage CEO who reads the 11% growth figure and concludes that fundraising conditions have eased will be disappointed. The right reading is that the system has liquidity and that it is being allocated with discipline. Your task is to show why your programme belongs in the portion that attracts it, using milestone evidence rather than narrative.

The distinction between companies matters for the story told to the board. A leader whose team is highly regarded, with a mechanism validated in humans and a clinical plan agreed with regulators, has access to a different set of options from a team with a promising platform and no clinical data. Boards should therefore agree on a candid assessment of where the company stands in the market and which routes are realistic today, rather than planning on the basis of the best case.

Driehaus Capital Management counted 11 biopharma IPOs by 31 May 2026, with two more on file, already more than the totals for 2022, 2023 and 2025. The mean deal size has been $345.2 million, well above the typical range of $150-250 million seen across 2020 to 2025. Larger offerings from more advanced companies characterise this recovery, rather than a broad return of early-stage listings.

The profile of the issuers is instructive. Of the 11 offerings, 55% had an asset in phase 2 and 36% in phase 3. Companies reaching the market have clinical data that investors can underwrite, which is consistent with PitchBook's view that capital favours later-stage programmes. Seven of the 11 traded above deal price on day one, and the median one-day performance was a gain of 34.7%, encouraging for issuers that follow.

For a pre-revenue CEO, the message is nuanced. The window exists, but it is open to companies with substantial data and a story that crossover investors have already validated. Getting there usually requires a crossover round to show institutional demand, followed by a period of disciplined public-company preparation. That sequencing needs planning 18 to 24 months ahead, and cannot be improvised once a window appears.

What to do: define the data package and governance that would make you IPO-ready, and cost the preparation. Even if you do not list, the same discipline, audited financials, a reporting rhythm and a seasoned board, supports partnership and structured-finance negotiations. Treat IPO readiness as an asset to build, not an event to hope for.

One practical consequence concerns the cap table. A company expecting to list needs a shareholder base that can support the offering: a few credible specialist investors holding meaningful positions, and a clean structure of preferred shares and convertible instruments that converts smoothly. Messy early financings, with unusual rights or many small holders, complicate the process and can cost weeks of preparation. Simplifying before a crossover round is far easier than doing so under the time pressure of a live window, so legal housekeeping belongs in the capital plan alongside the clinical calendar.

Licensing is increasingly a source of funding as well as validation. According to the South China Morning Post, Chinese drug makers signed 157 out-licensing deals worth $135.7 billion in 2025, against 94 deals worth $51.9 billion in 2024. EY reports that 39% of US biobucks, the headline value of licensing deals, flow to China. Assets originating in Asia are being acquired and licensed at a pace that changes the competitive landscape for Western developers.

This cuts two ways for a Western biotech. It raises the bar: large pharmaceutical buyers have more choice, and they can pick assets from a broader global pool at attractive terms. It also creates opportunity, since the same buyers are building portfolios through licensing, and a differentiated asset with robust data can command upfront payments that fund development without equity. Cross-border structures, including new companies formed around assets in-licensed from Asia, have become a recognisable pattern.

EY adds that M&A and licensing volume and value continue to increase in 2026, which suggests that the partnering market is a persistent feature of the landscape. For companies in the UK, Europe and the Gulf, regional partnership and co-investment may also be available through sovereign and government-linked funds that are building life sciences positions, though the terms vary widely and need to be tested directly with each.

What to do: decide early which regions and rights you are willing to license, and which you wish to retain. Build a data room for partners at least a year before you need a deal. Open conversations with potential partners during the preclinical or phase 1 stage, when relationship-building is cheapest, rather than waiting for a funding gap to force a rushed negotiation.

Governance and intellectual property deserve attention in any cross-border transaction. Partners will examine the chain of title, freedom to operate and the status of licences from universities or other companies. Security and national-interest rules on foreign investment and technology transfer in several jurisdictions now add review steps for some transactions, particularly in the United States, the United Kingdom and the Gulf. Taking specialist advice before approaching counterparties helps avoid surprises in the middle of a negotiation, and a transaction that is clean on these points can close materially faster than one that is not.

The terms of a licence deserve as much attention as the headline value. Biobucks combine upfront payments, development and regulatory milestones and sales milestones, and only the first is certain. When a deal is announced at a large headline figure, the amount that reaches the licensor in the first two years may be a small fraction. A board should model the realistic cash timeline of any partnership, discount contingent payments for probability and compare the result with alternative sources.

L.E.K. Consulting reports that global royalty deal value rose from $5.2 billion in 2020 to $7.1 billion in 2025, with syndicated deals now about one-third of activity. Goodwin counts roughly $29.4 billion of biopharma royalty financings from 2020 through 2024, and notes that surveys suggest nearly 90% of biotech executives are considering a royalty financing within three years. A once-niche instrument is entering the standard toolkit.

Gibson Dunn tracks a related, narrower dataset. Its life sciences royalty finance volume was $3.86 billion in 2022, $6.42 billion in 2023 and $5.07 billion in 2024, with 2025 annualising at $5.42 billion on first-half data. The pattern is one of volatility around a higher plateau. Average upfront payments fell to $114.92 million from $160.60 million in 2024, a reminder that terms are negotiated and that market conditions affect pricing.

Royalty finance suits companies with an approved product or a clear path to revenue; it generally does not suit a pre-clinical business with no sales. However, synthetic royalties, where investors fund development in return for a share of future sales, are used earlier. The trade-off is that you give up part of the upside indefinitely in exchange for avoiding immediate dilution, so it should be modelled against the equity alternative at the valuation you expect to achieve.

What to do: if you expect revenue within three to four years, model a royalty or synthetic royalty alongside your next equity round, comparing the lifetime cost of capital under realistic sales scenarios. Take legal and tax advice early, since the structure of the instrument and who may market it to investors depend on jurisdiction and, in the UK, on regulated-activity rules.

Counterparty selection matters as much as price. Royalty investors differ in appetite for risk, in their expectations of reporting, and in how they behave if a product underperforms. Some are passive; others expect a seat at the table or restrictive covenants. Talk to other companies that have used the same investor, and ask specifically how they handled disagreements over commercial strategy. The documentation, particularly caps, step-downs and buy-out rights, determines the true cost of capital, and it is worth modelling those features explicitly rather than comparing headline percentages.

It is also useful to understand what happens to the cap table and governance. Many royalty investors do not take equity and do not sit on the board, which is attractive to founders who wish to preserve control. However, the royalty is typically senior to equity in the economics of sales, and may constrain later decisions such as selling the asset or licensing it to a partner. Legal advisers should test these interactions before an agreement is signed, to avoid conflicts with future partnering plans.

HSBC Innovation Banking reports that global venture funding into life sciences and healthcare rose 10% year on year, from $54bn to $60bn, with Europe up 28%. Europe's growth from a smaller base suggests that regional investors are active, and a company based in the UK, France, Germany or the Nordics may find local capital that is less concentrated in late-stage rounds than the global figures imply.

Public and non-profit funding, including research grants, innovation agency awards and disease-foundation programmes, can finance early work with no dilution. In our assessment such funding is usually modest relative to clinical development costs and often comes with reporting conditions, intellectual-property provisions and timetables that a company must plan around. It is most valuable as a way to reach the data that makes the next financing cheaper, rather than as a substitute for it.

Policy uncertainty adds a further consideration. Grant budgets in some jurisdictions have faced reviews and delays, so a business that depends on a single public funder carries concentration risk. Applying to several programmes, in more than one country where the science permits, spreads the exposure. Engaging early with the funder to understand the review cycle also prevents a delayed decision from leaving a gap in runway.

What to do: assign one person to track non-dilutive opportunities, with a calendar of deadlines and decisions. Quantify the value of each award not only in cash but in the milestone it funds and the equity value it protects. A grant that finances the experiment that lifts your next round valuation is worth far more than its face value.

Europe also has a distinctive set of public and quasi-public sources. National innovation agencies, European programmes and regional development funds can complement private capital, and some co-invest alongside venture funds. In the Gulf, sovereign and government-linked investors are building life sciences capabilities and local manufacturing, creating opportunities for companies willing to establish a regional presence or partnership. These sources work to different timetables and expectations from Boston or London venture funds, so approaching them requires patience, local advisers and clarity on what you can offer in return.

The practical answer to a selective market is a plan, not a hunt for a single funder. Start with the milestone calendar: the data readouts, regulatory interactions and manufacturing steps that will define value. For each milestone, cost the work and set the date by which you need cash. Then match each need to the cheapest source that will plausibly be available at that point, with a fallback if it is not.

Sequence matters because each route has a different timeline. Grants can take six to twelve months to decide. Partnership discussions often run longer than a venture round because they involve scientific diligence, legal negotiation and internal approvals at the partner. Royalty transactions require audited data on expected sales. Starting each in parallel, roughly a year before the cash is needed, gives the board real choice and avoids the risk of every conversation reaching its decision point at the same time.

Governance should reflect the plan. Boards need a rolling view of runway under at least three scenarios: base, delayed readout and failed financing. They need clear rules on when to trigger contingency actions, such as pipeline prioritisation, a partnership process or a restructuring. They also need advice from regulated professionals when any transaction involves the offer of securities, and in the UK financial promotion rules limit how and to whom an offering may be communicated.

What to do: within 60 days, produce the capital plan, the milestone calendar and the runway scenarios, and agree them at board level. Review quarterly. The aim is that no financing event arrives as a surprise, and that each round, whether equity or otherwise, is raised when the company's data and negotiating position are strongest.

Finally, communicate the plan to investors. Existing shareholders are more likely to support a bridge, or a down-side contingency, if they have seen the analysis in advance and know that management has considered alternatives. New investors respond well to a company that can explain precisely how each round fits within a broader capital strategy. Transparency about options is a sign of discipline, and it improves the terms available from every source, because counterparties know the company is not negotiating from a single point of dependence.

Our Capital Raising work helps biotech leadership teams build the blended capital plan described here: mapping milestones to funding sources, preparing data rooms and investor materials, and coordinating introductions to partners and investors. Where an activity is regulated, we work alongside FCA-authorised firms. This is information, not investment advice.