In a candid and insightful discussion at this year’s investor session at Cell 2025 in London, a 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. The VC leader 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,” he 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 20% for private equity — many have found themselves overexposed in illiquid positions. As a result, venture capital funds have been 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, the leader noted a gradual recalibration: the first half of 2025 was expected to feel “closer to normal,” with similar amounts of total capital being invested but distributed among fewer, more promising companies. He added that once the IPO market reopens and interest rates come down, more generalist investors are likely to return to biotech, liquidity will begin to flow again, and the 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,” he 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 he characterized as “a period of complete excess.” Many of today’s founders, he 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,” he 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.
- Stay in academia longer
He urged founders not to rush out of academia. Academic environments provide access to facilities, networks, and resources that would otherwise be prohibitively expensive. Staying longer allows founders to generate high-quality data and refine concepts at a fraction of the cost, making a startup more attractive when it is time to raise venture capital. - Leverage non-dilutive funding
Rather than immediately seeking private investment, he encouraged founders to pursue grants and other non-dilutive sources. Securing grant funding signals credibility to investors and enables scientific progress without giving away equity too early. - Bring in experienced advisers early
He emphasized that many academic founders know the science deeply but may be less familiar with therapeutic development requirements. Bringing in advisers with pharma experience early can help teams think through CMC, regulatory strategy, and manufacturing challenges before they become roadblocks. - Be disciplined with cash
He was blunt about the importance of spending habits. The era of flashy offices and branded perks after a seed round is over. If seed or Series A companies spend unwisely, investors will walk away. Cost-effectiveness and operational efficiency are now core signals of readiness.
Defining Proof of Concept: What Investors Really Look For
When describing how investors evaluate startups, the VC leader outlined a clear hierarchy of proof points that signal readiness for serious capital:
- In vitro validation – solid, reproducible scientific data demonstrating biological activity or mechanism of action.
- Relevant animal models – evidence the therapy works in a model that mirrors the human condition, ideally supported by long-term (≥160-day) data.
- CMC (Chemistry, Manufacturing, and Controls) – a deep understanding of the technical and logistical challenges of producing the therapy consistently and at scale.
“The ultimate proof of concept is in humans,” he 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 closed with enthusiasm for continuing the dialogue at future events. Plans were already in motion for a dedicated half-day satellite session on the investment landscape at Cell 2026 in London, Olympia. The session is expected to feature a panel of venture capital experts and an interactive Q&A where founders can ask direct questions about pitching, preparation, and what investors are really looking for.
“Not all VCs are created the same,” he 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 teams that plan carefully, validate thoroughly, and spend wisely.
As the VC leader summarized:
“Show us that you understand the science — and the process. That’s how you stand out.”
With next year’s investment landscape session set to expand this dialogue, the conversation between innovators and investors appears poised to become more collaborative — and ultimately more productive — as the biotech sector steadies itself for renewed growth.
