Last Updated on
January 10, 2024
Investopedia defines venture capital as a form of private equity financing that investors give to startups and small businesses they believe have long-term growth potential. Generally speaking, it comes from well-off investors, investment banks, and other financial institutions.
Though they’re most often considered cash investments, VC investments may also be in the form of managerial or technical expertise and support. In exchange for this investment, the VC firm gets equity in the company. As a result, they have a say in company decisions.
For new labs with limited operating history, VC is becoming an increasingly important source of funds. In situations where access to bank loans, other debt instruments, or capital markets are not available, VC funding is essential. Starting a lab is an expensive endeavor because not only do you need lab space, but you also have to have the right kind of equipment. VC gives you access to the funds you need to take care of whatever you need to get your lab up and running while you apply for government and non-government grants and continue to look for additional sources of funding.
Securing VC investments for your biotech company will take time and effort. Because of the risk of losing their money, potential investors will spend time vetting your company to make sure the potential for a good return is possible.
Large markets will grab an investor’s attention. “Large” generally means that the market can generate at least $1 billion or more in revenue. To receive the return they expect from their investments, venture capital firms generally want to ensure that their portfolio of companies has a chance of growing sales worth hundreds of millions of dollars.
The larger the market size, the greater the likelihood of a trade sale. This makes the business even more exciting for VC firms looking for possible ways to exit their investment. Ideally, the business will grow fast enough for them to take first or second place in the market.
Investors want to spend their money on outstanding products and services that have a competitive edge that will last a long time. They look for solutions to real problems that haven’t been solved before by other companies currently in the marketplace. They’re looking for products and services that customers can’t live without, because they’re so much better or cheaper than anything else is currently available on the market.
When assessing your company, they’re looking for a competitive advantage. They want to be able to generate sales and profits before competitors enter the market and reduce overall profitability. The fewer direct competitors, the better for you and your potential investors.
Look at all the other biotech ventures out there right now. Do your homework about the firm and its investors. Adjust your pitch according to what you learn. Avoid using the same pitch for each company.
In terms of other biotech startups, what are you doing differently than your direct competition? Who has your direct competition approached for financing? Don’t expect any VC firm to invest in you if they’re already working with your competitors.
Management is the biggest factor that smart investors consider. Their investment is in the management team and the team’s ability to execute their business plan. As such, investors are looking for executives who have built successful businesses that will generate high returns for investors.
As a business looking for a venture capital investment, you should be able to provide a list of qualified and experienced people who play major roles in the company’s development. If your business lacks talented managers, you should be willing to hire them from outside. Many venture capitalists would rather invest in a bad idea that’s led by a strong management team than invest in a stellar business plan that’s supported by a group of inexperienced managers.
Anything you tell a potential investor needs to be supported by data. During their due diligence investigations, these firms will have their accountants review your financial reports very closely. Be sure to have income statements and balance sheets, along with information about your customer acquisition costs, retention rates, average purchase amounts and more. Make sure you account for every penny and every product, with reports and receipts to back it up.
Even if you carefully put together your financial statements, your financial situation will be hard to prove if it’s not supported in documentation at this phase. A simple accounting error may be the difference between getting the funding or not.
Not only do venture capitalists want to see your financial reports, they want to see that you’re making progress. You don’t necessarily have to be profitable yet, but if there isn’t substantial growth, you likely won’t secure an investment.
They want to know about your sales, marketing, and business model along with historical revenues and future projections.
ARCH Venture Partners has made it their business to back disruptive science by investing anywhere from $50,000 to $150 million per company. They have offices in three of the top cities for biotech, including Chicago, Seattle, and San Francisco. They also have an office in Dublin, Ireland. They had five series A deals in 2019, and are currently involved in coronavirus research.
Orbimed, founded in 1989 in NYC, has over 20 years of investment experience in the healthcare industry, and has $19 billion in assets under management. It has grown into a global company, with headquarters in several cities. The firm’s partners have a consistent track record and have proven themselves a steady venture capital partner in the life sciences. The firm focuses on investing in biopharmaceuticals, medical devices, diagnostics, and healthcare companies with the potential to change and save patient lives.
OrbiMed has built a strong foundation for successful investments due to its operating skills, investment experience, and scientific understanding. From early-stage companies to national corporations, OrbiMed discovers global companies with innovations that will help ensure humanity experiences healthier and longer lives.
The investment team is involved in public equity and private markets and comprises over 100 experienced professionals who hold expertise in law, medicine, biosciences, and finance.
Cannan prides itself on being an early-stage venture capital firm. Like ARCH, they invested in five major series A deals in 2019. Biopharma only represents a small portion of their total portfolio, but the companies they’re involved with are highly reputable. For example, Comet Therapeutics is developing small molecule therapeutics with a focus on rare genetic diseases and errors of metabolism that aims to address defects in the body’s ability to turn food into energy.
Some other examples include Arrakis Therapeutics, a company pioneering the discovery of medications that directly target RNA, and Graywolf Therapeutics, a biotechnology company developing next-generation immunotherapies highlighting non-responsive tumors for destruction by the immune system.
SR One Management is a venture capital firm well-versed in funding companies in the life sciences and health care. It was founded in 1985 by GlaxoSmithKline (GSK) and focuses on improving the health of patients with unmet medical needs. It does this by translating innovative technologies into next-generation medicines.
SR One partners with industry experts, scientists, entrepreneurs, and other investment partners to build and execute strategies that support the growth and development of elite biotech companies.
Simeon George is the current CEO, Rajeev Dadoo is the Executive Managing Partner. Some of the other partners involved include Matthew Foy, Jill Carroll, and Eliot Charles.
Sofinnova was also involved in five series A projects in 2019. Overall, they’ve funded 88 companies, of which 41 IPO’d, and 17 resulted in mergers/acquisitions.
Their 120 years of operating experience and 100 years of investing experience has led to 18 FDA approved drugs, and much more. Their portfolio includes companies focused on orphan disease, cancer, and other specialties such as neurology, women’s health, and ophthalmology.
Flagship Pioneering participated in three series A projects in 2019. It has founded more than 100 companies and ads anywhere from six to eight new companies every year.
Its track record is also highly impressive, with over 20 IPOs since 2013 and more than 2,500 patents granted across the globe. Moderna is perhaps their most well-known portfolio company, having created one of the first COVID-19 vaccines using mRNA.
Flagship’s network of collaborators includes AstraZeneca, Bayer CropScience, and Nestle Health Science.
Atlas Venture, a biotech venture capital firm, was founded in 1980 by Michiel de Haan as a subsidiary of NMB Bank in the Netherlands. The company spun out of NMB Bank in 1987, and the name Atlas Venture was chosen. Its headquarters are located in Cambridge, Massachusetts.
Following its founding, it diversified its venture capital funds in 1990 to include life sciences and technology in its investment strategies. These sectors were eventually separated into two different firms. The company is committed to investing in innovative biotech startups, and focuses on finding and funding remarkable entrepreneurs with experience in research, business, and clinical development; all of which are necessary tenets for building a breakthrough biotech company.
Frazier Healthcare Partners is a venture capital investment firm focused on investing in innovative healthcare companies. It specializes in incubation, growth equity funding, and liquidation. Since its establishment, it has invested in over 200 companies and raised over $7.1 billion in total capital.
The company has a variety of investment interests, ranging from company creation, venture capital investments, to acquiring lower middle-market firms that are profitable. For the same purpose, the company is divided into two teams: Growth Buyout and Life Sciences, both of which invest in North America, Europe, and Asia, with a focus on healthcare services, pharmaceutical startups, and innovative products.
The COVID-19 pandemic has led to the rapid development of high-throughput healthcare innovations and drug delivery technologies. Since the virus first appeared, scientists and medical professionals have worked tirelessly to treat and prevent any similar future crises.
Behind these groundbreaking innovations and developments are other critical players like 5AM Ventures, a well-established venture capital firm comprising expert life science investors. Its mission is to solve funding issues in the healthcare sector and build next-generation life science and biotech companies.
Private equity and venture capital firms play a pivotal role in introducing innovative and affordable solutions to health infrastructure. Polaris Partners is committed to just that, with a focus in healthcare, software, and biotech startups.
It builds companies that work on life-changing solutions, and partners with healthcare founders to support them in their endeavors across all stages. Together, the firm and the founders it supports develop approaches that accelerate medical operations, provide scalable solutions, and improve patient care.
As good as an idea might be, building a successful business around it often requires a substantial amount of funding and resources, especially in a capital-intensive industry like the life sciences.
This is where venture capital (VC) firms like Perceptive Advisors can provide a helping hand to startups. By investing in the company, the firm can help the founders get their business off the ground, validate their science, and conduct initial proof-of-concept studies.
Perceptive Advisors, also known as the Perceptive Xontogeny Venture Fund, was founded in 1999 by Joseph Edelman, the Chief Executive Officer and Portfolio Manager of the company.
IndieBio, a popular biotechnology and life science accelerator located in San Francisco, California, was founded in 2014 by Arvind Gupta. Upon its founding, it was the world’s first startup accelerator for synthetic biology.
IndieBio is committed to raising biotech startups from bench to product by assisting in the development of the startup’s business model, go-to-market strategy, and future fundraising efforts. It provides each company $525,000 in seed funding, co-working and lab space, and dedicated mentorship. Startups also gain access to its huge network of alumni, investors, biotech entrepreneurs, investors, press, and corporate partners.
Its accelerator program is renowned, and has supported big ideas since the beginning, creating value that adds up to over $4B.
Life Science Partners, a global biotech VC firm, has offices in Munich, Amsterdam, and Massachusetts. As one of Europe’s most experienced healthcare investment firms, they participated in three Series A investment rounds in 2019. With investments in developing and delivering therapies for central nervous system disorders, natural killer cell therapies, enzymatic DNA synthesis, and more, the company has raised more than 1.6 billion pounds ($2 billion) for biotech companies.
We face health crises and challenges often, and many investors are now focusing their resources on companies that can bring revolutionary solutions to the healthcare sector. RA Capital, short for RA Capital Management, LP, is a multi-stage investment manager that does just that.
It provides funding to public and private healthcare, life sciences, pharma, and biotech companies for developing drugs, medical devices, and diagnostics. RA Capital was founded in 2001 and is led by Piter Boelhouwer, the managing director of the company, and its managing partners, Peter Kolchinsky, Rajeev Shah, Andrew Levin, Josh Resnick, and Ryan Berry.
The firm is dedicated to evidence-based investing, and supports the development of drugs, medical devices, diagnostics, and more.
NEA is one of the largest VC firms out there – but healthcare is not their only area of focus. In addition to healthcare, they invest in technology companies, providing funding across all stages, from startups and early-stage companies to those that are in the later stages of massive growth. In 2019, they participated in three series A deals.
Morningside was founded in 1986 and provides capital to businesses in clean technology, education technology, and life sciences. In the life sciences sector, they’ve invested in diagnostics, therapeutics, medical devices, and telescopes. Like NEA, they provided funding on three series A deals in 2019.
The Column Group is focused on “science-driven” healthcare venture capital, investing in early-stage drug discovery companies. They invested in two series A deals in 2019. Their office is in San Francisco, California.
Third Rock Ventures, LLC was founded in 2007 and is headquartered in Boston, Massachusetts. It is a venture capital firm with a portfolio comprising more than 58 life science companies—all of which share the central mission of translating scientific discoveries and ideas into breakthrough medicines.
Alta Partners, a healthcare-focused venture capital firm, is based in San Francisco, California, and was founded in 1996. It has been building impactful companies along side industry leaders and entrepreneurs for decades now, and boasts a life sciences portfolio with over 70 FDA approvals.
The firm’s tech-enabled services companies treat hundreds of thousands of patients yearly, and it continues to seek out innovative entrepreneurs with a good idea and an irrepressible passion for creating life-changing solutions.
This VC firm invests in a variety of companies across multiple industries including biology, cybersecurity, applied AI, digital health, and more. They have offices in Palo Alto and San Francisco and invested in two series A biotech deals in 2019.
Although fundraising is a challenging task that takes up a lot of your time—time you could spend at the bench—it’s most likely essential that you secure funds. Because this industry is so capital-intensive, the success of your business often hinges on how much money you can raise. Developing a new product takes time and money, and fundraising is often the only way to keep the lights on as you work on a product you can eventually sell.
There are numerous biotech funding options available. And although funding opportunities rise and fall from year to year, there are more ideas than ever are being backed by investors who specialize in the life sciences, or have recently turned their focus on the sector. If you’re a biotech startup founder and you're going to go the venture capital route, use this list as a starting point.
We work with venture-backed laboratories, and can tell you from experience that one way these founders have been better able to manage the money they’ve raised through a seed round or Series A round is to lease the specialized, often highly expensive equipment needed for modern research and drug development.
If you’d like to learn more about how leasing can extend your cash runway (make your funding round last longer) and alleviate cash burn (slow down your spending), let us know! We can put together a customized lease that fits your needs.