Securing venture capital has long been a critical milestone for biotech startups, but in recent years, accessing funding has become increasingly difficult. Unlike tech startups that can scale quickly and show early returns, biotech companies face long development timelines, regulatory hurdles, and high capital requirements—factors that make investors more cautious. Even promising startups with breakthrough therapeutics, gene therapies, or next-generation drug discovery technologies often struggle to raise enough funds to reach the next phase of development.

This VC bottleneck has forced biotech founders to rethink their fundraising strategies, business models, and capital efficiency. While some have turned to big pharma partnerships, others are exploring alternative financing solutions to navigate the challenges of scaling. Understanding why this funding bottleneck exists—and how to work around it—can help biotech entrepreneurs, CEOs, and CFOs position their startups for sustainable growth.

In this article, we’ll explore:

• Why venture capital is harder to secure for biotech startups compared to other industries.
• The biggest funding roadblocks, from clinical trial costs to valuation challenges.
• Strategies for overcoming the bottleneck, including alternative funding sources and operational efficiencies.

For biotech startups looking to scale, securing VC investment is only part of the equation—maximizing capital efficiency and optimizing financial decisions can make the difference between stalled growth and long-term success.

The Reality of VC Funding in Biotech

Venture capital (VC) plays a pivotal role in fueling biotech innovation, but the funding model for biotech startups differs significantly from other industries. Unlike tech startups, which can often generate revenue early through software or digital products, biotech companies operate on long development timelines—sometimes stretching over a decade—before they bring a product to market.

This delayed return on investment makes biotech a risk-heavy space for VCs. Investors must be willing to wait through preclinical research, regulatory approvals, and multiple clinical trial phases before seeing potential profits. Even then, a startup's success is far from guaranteed—many companies fail due to regulatory setbacks, clinical trial failures, or shifting market conditions.

How Biotech VC Funding Has Shifted in Recent Years

The funding landscape for early-stage biotech startups has changed dramatically in the past few years:

• VC funding slowdowns: Following a surge in biotech investment during the pandemic, venture funding has tightened, making it harder for startups to raise capital.
• Increased investor caution: Many investors now prefer later-stage companies with de-risked assets rather than taking chances on early-stage drug discovery startups.
• IPO market struggles: The biotech IPO window has narrowed, with fewer companies going public compared to previous years.
• Big pharma’s role: Many biotech startups now rely more on partnerships with pharmaceutical companies rather than traditional VC alone.

As a result, biotech entrepreneurs are facing new challenges in securing Series A funding and beyond. The days of easily securing Silicon Valley-backed biotech investments are fading, forcing startups to rethink their fundraising and capital allocation strategies.

Why Biotech Startups Struggle to Secure Funding

Unlike software startups, where early revenue can de-risk investments, biotech companies often require years of funding before reaching key milestones. These obstacles make fundraising increasingly difficult, particularly in the current market.

Below are the primary funding roadblocks biotech startups encounter.

Long Development Timelines & Capital Intensity

• High upfront costs: Unlike tech startups that can build an MVP with minimal capital, biotech companies require significant funding from the outset for lab space, equipment, and research personnel.
• Clinical trial and regulatory hurdles: Bringing a new therapeutic, vaccine, or gene therapy to market requires FDA approval, which involves multiple clinical trial phases and can take 10+ years.
• Infrastructure demands: Some companies choose to build in-house R&D operations, while others rely on outsourced partnerships—both of which require substantial capital investment.

Risk-Averse Investors & Valuation Challenges

• Uncertain returns: Even promising biopharma startups face unpredictable clinical outcomes, making them riskier investments than other industries.
• Complex valuations: Unlike traditional startups that can show early revenue, biotech valuation relies on scientific progress, intellectual property, and regulatory milestones—factors that are harder for generalist VCs to assess.
• Dependence on big pharma: Many biotech startups rely on partnerships with pharmaceutical companies for funding, which often means giving up equity or licensing deals early.

Ecosystem Shifts & External Factors

• The pandemic’s funding impact: While biotech saw a funding boom during the pandemic, investment has since slowed, leaving many startups struggling to raise follow-on rounds.
• Silicon Valley’s shifting focus: More VCs are prioritizing AI, sustainability, and next-generation biotech rather than traditional drug development.
• Artificial intelligence in biotech: Investors are increasingly backing AI-driven drug discovery startups, which promise faster results, rather than committing to traditional long-cycle biotech R&D.

For biotech entrepreneurs, CEOs, and CFOs, these roadblocks highlight the need to diversify funding strategies beyond traditional VC and find ways to optimize their capital efficiency.

How Biotech Startups Can Overcome the VC Bottleneck

While securing venture capital has become increasingly difficult, biotech startups can take strategic steps to improve their funding prospects and maximize capital efficiency. Rather than relying solely on traditional VC investment, startups must explore alternative funding sources, optimize operational costs, and position themselves as attractive investment opportunities. Here’s how:

1. Optimize Your Business Model & Funding Strategies

Many biotech startups struggle because they follow a traditional, VC-dependent funding model without exploring alternative capital sources. To improve funding prospects, startups must diversify their financial strategy and de-risk their business models.

Leverage Non-Dilutive and Alternative Funding Sources

Venture capital isn’t the only option. Startups can access capital through:

• Government grants & research funding: Agencies like the NIH, NSF, BARDA, and DARPA provide non-dilutive grants for early-stage biotech R&D, drug discovery, and clinical trials.
• Strategic partnerships with pharmaceutical companies: Big pharma and biopharma companies often fund promising startups through research collaborations, milestone-based payments, or licensing deals.
• Corporate venture arms: Many pharmaceutical companies, including Pfizer Ventures, Novartis Venture Fund, and Roche Venture Fund, actively invest in biotech startups.
• Industry incubators & accelerators: Programs like Johnson & Johnson’s JLABS, IndieBio, and Illumina Accelerator offer funding, lab space, and mentorship to early-stage biotech startups.

By leveraging these funding sources, startups can extend their financial runway without giving up excessive equity.

Strengthen Intellectual Property (IP) Strategy

A strong IP portfolio can significantly boost a biotech startup’s valuation and attractiveness to investors. To maximize IP impact:

• File patents early: Securing patents before entering funding rounds increases credibility and provides leverage in negotiations with VCs and pharma partners.
• Protect trade secrets & proprietary technology: Not all valuable IP needs to be patented—some technologies should remain proprietary to prevent competitors from reverse-engineering innovations.
• Explore licensing opportunities: Some biotech startups generate early revenue by licensing their technology to larger biopharma companies while they continue product development.

A well-structured IP strategy reduces investor risk and can be a dealmaker in securing funding.

De-Risk Scientific & Business Milestones

Investors prefer startups that demonstrate clear progress toward commercialization. Biotech founders should:

• Break development into manageable milestones: Instead of presenting an all-or-nothing roadmap, show how smaller, de-risked steps (e.g., preclinical results, IND filings, early clinical trial success) validate the startup’s progress.
• Balance short-term revenue with long-term R&D: Some startups struggle because they are purely research-focused. Exploring early commercial applications (e.g., platform licensing, diagnostic spin-offs, or contract research services) can provide short-term revenue to offset funding gaps.
• Present clear regulatory pathways: Since FDA approval is a key investor concern, biotech founders should have a well-defined regulatory strategy that accounts for potential roadblocks and contingencies.

By addressing these areas, startups become more attractive to investors who prioritize risk mitigation.

2. Expand Fundraising Beyond Traditional VC Investment

With biotech venture capital tightening, startups must expand their fundraising approach beyond traditional VC firms.

Target Specialized Life Sciences Investors

Rather than pitching to generalist VCs, biotech founders should focus on investors who specialize in life sciences, biopharma, and healthcare. These investors:

• Better understand biotech risks and timelines and are less likely to demand short-term revenue.
• Are often willing to fund pre-revenue startups with strong scientific and regulatory foundations.
• Have connections within the biotech ecosystem, including potential pharma partners and CROs.

Examples of biotech-focused investors include:

• ARCH Venture Partners (early-stage biotech)
• Third Rock Ventures (biopharma and therapeutics)
• Flagship Pioneering (focus on breakthrough biotechnology)
• RA Capital Management (biotech public and private investments)

Leverage Thought Leadership & Industry Networks

Unlike traditional tech startups, biotech startups need scientific credibility to gain investor trust. Founders can:

• Publish research in reputable journals to demonstrate innovation.
• Leverage LinkedIn, biotech conferences, and investor panels to showcase expertise.
• Engage with industry influencers (e.g., seasoned biotech executives, regulatory advisors, and venture partners) to gain investor introductions.

A strong industry presence and credibility can open new funding doors.

Consider International Venture Funding

While Silicon Valley has shifted focus to AI and sustainability, biotech investment remains strong in Europe, Asia, and emerging biotech hubs. Startups should explore:

• European biotech investors (e.g., Sofinnova Partners, Forbion, LSP).
• Asia-based biotech funds, particularly in China, Japan, and Singapore, where governments and private firms are aggressively funding biotech innovation.

By broadening their fundraising efforts beyond U.S.-based VCs, startups increase their chances of securing investment.

3. Improve Capital Efficiency When Possible

With funding rounds becoming more difficult, biotech startups must rethink how they allocate capital to preserve runway and maintain operational flexibility.

Reduce Upfront Costs Through Leasing & Alternative Financing

• Lab equipment leasing: Instead of purchasing expensive lab equipment, leasing options allow biotech startups to access high-end technology without massive upfront costs.
• Flexible financing for R&D expenses: Some biotech startups partner with specialized lenders who offer financing for clinical trials, regulatory costs, and operational expenses.
• Cloud-based and outsourced research: Virtual biotech companies are increasingly using cloud labs, AI-driven drug discovery platforms, and CRO partnerships to reduce in-house expenses.

Streamline Operations to Improve Financial Sustainability

• Optimizing clinical trial costs: Working with cost-efficient CROs, using synthetic control arms, and leveraging AI-based trial design can significantly lower clinical trial expenses.
• Smart hiring strategies: Instead of over-hiring early, startups can use contract-based talent and fractional executives to remain lean while still accessing top expertise.
• Strategic partnerships with academic institutions: Collaborating with universities and research institutions can provide access to affordable lab space, talent, and grant opportunities.

Leverage AI & Automation to Improve R&D Efficiency

• AI-driven drug discovery platforms can reduce the time and cost required for compound screening and target validation.
• Automated lab workflows help accelerate sequencing, cell culture, and biomarker analysis, allowing startups to scale research without excessive personnel costs.
• Predictive modeling for clinical trials reduces failure rates and improves trial design, lowering costs while improving outcomes.

By optimizing capital efficiency and exploring alternative funding models, biotech startups can extend their financial runway and scale more effectively, even in a challenging VC climate.

Rethinking Growth in a Shifting Biotech Funding Landscape

The VC bottleneck in biotech is real, but it doesn’t have to be a roadblock to growth. While traditional venture capital funding has become more selective, startups that adapt by diversifying funding sources, optimizing capital efficiency, and building strategic partnerships can still scale successfully.

Rather than relying solely on Series A rounds, biotech founders should explore non-dilutive grants, pharma partnerships, and industry-specific venture arms. Strengthening intellectual property portfolios, de-risking milestones, and leveraging AI-driven R&D can further improve investor appeal. At the same time, optimizing financial sustainability—by reducing upfront costs, leasing essential equipment, and streamlining operations—ensures that a startup can extend its runway and focus on scientific progress.

A Smarter Way to Preserve Capital & Scale Efficiently

For biotech startups navigating tight funding conditions, capital efficiency is just as important as securing investment. One way to reduce upfront costs and keep operations lean is through equipment leasing. Rather than tying up millions in lab infrastructure, leasing allows startups to:

• Access cutting-edge lab equipment without massive capital expenditures.
• Preserve cash flow for critical R&D, hiring, and clinical trial costs.
• Maintain operational flexibility, upgrading technology as needed without long-term financial strain.

At Excedr, we help biotech startups scale smarter by providing cost-effective lab equipment leasing solutions that support innovation without draining financial resources. Want to explore how leasing can help your startup scale efficiently? Learn more here.