What Biotech Startups Need to Know

In a candid and insightful discussion at this year’s investor session, one venture capital leader laid out the financial realities shaping today’s biotech ecosystem – and offered practical advice for startups navigating a complex, shifting funding landscape.

The State of Play: A System Under Pressure

Over the past few years, the venture capital environment for biotech has undergone dramatic shifts. Sven described how global financial conditions – from high interest rates to a stagnant IPO market – have created a bottleneck effect that constrains capital flow throughout the system.

“The whole system’s clogged up because of the IPO market and M&A slowdown,” Sven explained. “Until that reopens, we’re stuck. LPs can’t invest more into VCs, VCs can’t recycle their capital into new companies, and it becomes a chain reaction.”

With limited partners (LPs) restricted by allocation caps – typically between 5% and 30% for private equity – many have found themselves overexposed in illiquid positions. As a result, venture capital funds are unable to deploy new capital at the same rate as in previous years.
This slowdown has had a ripple effect across early-stage biotech, where funding has become increasingly competitive.

Despite this, Sven noted a gradual recalibration: the first half of 2025 is expected to feel “closer to normal,” with similar amounts of total capital being invested but distributed among fewer, more promising companies. “Once M&A returns and the IPO market opens and interest rates come down,” they said, “we’ll see more generalist investors returning to biotech, liquidity will flow, and the whole cycle will reset.”

A Call for Realism and Value Creation

Perhaps the most striking message was one of discipline. “It’s about knowing what you’re going to do, making promises and actually delivering them,” Sven said. “Investors have bosses too – we have LPs to report to – and it’s about creating good value for everyone in the chain.”

This return to fundamentals marks a clear departure from the exuberance of 2020–2022, which Sven characterised as “a period of complete excess.” Many of today’s founders, they suggested, began forming their companies during those years and have come to see that environment as normal – when in fact, it was an anomaly.

“We’re now back to a more sustainable normal,” they said. “That means efficiency, accountability, and a sharper understanding of what real progress looks like.”

Advice for Startups: Building Smarter, Not Faster

For early-stage biotech founders, particularly those emerging from academia, the advice was both pragmatic and encouraging.

1. Stay in academia longer

“Don’t rush out of academia,” “You can do a lot of high-quality work at a fraction of the cost.” Academic environments provide access to facilities, networks, and resources that would otherwise be prohibitively expensive. Using this period to generate data and refine your concept can make a startup far more attractive when it’s time to raise venture capital.

2. Leverage non-dilutive funding

Rather than immediately seeking private investment, Sven encouraged founders to pursue grants and other non-dilutive sources. “Bringing in grant money shows investors that you can attract funding and manage it wisely,” they said. “It also allows you to advance your science without giving away equity too early.”

3. Bring in experienced advisers early

Many academic founders understand the science deeply but are less familiar with the requirements of therapeutic development. “You need to bring in advisers who know how pharma works – people who can help you think about CMC, regulatory strategy, and manufacturing challenges early on.”

4. Be disciplined with cash

Sven was blunt about how spending habits can shape investor perceptions. “The days of buying branded jackets and fancy offices after your seed round are over,” “If you’re a seed or Series A company and you spend unwisely, VCs will walk away. It’s about being cost-effective and efficient with cash.”

Defining Proof of Concept: What Investors Really Look For

When it comes to evaluating startups, Sven outlined a clear hierarchy of proof points that signal readiness for serious capital:

  • In vitro validation – solid, reproducible scientific data that demonstrates biological activity or mechanism of action.
  • Relevant animal models – evidence that the therapy works in a model that mirrors the human condition, ideally with long-term (≥130-day) data.
  • CMC (Chemistry, Manufacturing, and Controls) – a deep understanding of the technical and logistical challenges of producing the therapy consistently and at scale and under GMP conditions.

“The ultimate proof of concept is in humans,” Sven said. “But there are stages before that – proof in vitro, proof in animals, and proof you understand how to make it. We want to see that you’ve planned for all of it.”

Looking Ahead: Building Dialogue and Understanding

The conversation concluded with enthusiasm for continuing this dialogue at future events. Plans are already in motion for a dedicated half-day satellite session on the investment landscape at Cell 2026 in London, Olympia. The session will feature a panel of venture capital experts and an interactive Q&A where founders can ask direct questions about pitching, preparation, and what investors really want to see.

“Not all VCs are created the same,” Sven noted. “We look for different things, have different risk appetites, and focus on different areas. Having multiple perspectives helps companies understand how to tailor their pitches and build more meaningful connections.”

Conclusion: From Uncertainty to Opportunity

While current market conditions remain challenging, the message for startups was one of cautious optimism. A more disciplined environment rewards those who plan carefully, validate thoroughly, and spend wisely. As Sven summarised:

“Show us that you understand how the science becomes a great medicine – and the process. That’s how you stand out.”

With the next year’s investment landscape session set to expand this dialogue, the conversation between innovators and investors looks set to become even more collaborative – and ultimately, more productive – as the biotech sector steadies itself for renewed growth.