Venture capital is often positioned as the holy grail for startups—especially in biotech and healthcare, where early-stage companies need millions just to get through preclinical development or product validation. For founders new to the venture capital industry, especially scientists-turned-entrepreneurs, VC funding can seem like the clear—and sometimes only—path to scale.
And for good reason. VC firms bring more than capital. They offer connections, signal credibility, open doors to partnerships, and often push companies toward high growth and IPO readiness. At its best, VC funding accelerates science, attracts top-tier talent, and helps promising startups navigate complex milestones and markets.
But here’s what often gets overlooked: venture capital is a business model, not a grant. And like any business, it comes with its own incentives, constraints, and consequences.
This post is a primer on how VC funding works—and a look at what many biotech and life sciences founders might overlook before fundraising. We’ll cover the basics, but also dig into the structural realities of venture capital that can shape everything from ownership to decision-making. It’s not a pitch for or against VC—it’s an attempt at offering a balanced view of what’s really involved, including a take you may not expect.
How Venture Capital Tends to Work
Before we get into what founders sometimes overlook, it’s worth understanding how the VC model functions—because that model explains a lot about how VCs behave, what they prioritize, and why their incentives don’t always align with yours. With VC becoming more and more prevalent, this section might be old news to a lot of people, but it’s worth quickly going over.
Where the money comes from
Venture capital firms raise funds from limited partners (LPs)—institutions like pension funds, university endowments, family offices, and high-net-worth individuals. These LPs are looking for high-risk, high-return opportunities that outperform traditional markets.
A typical fund has a 10-year lifespan, and general partners (GPs) at the VC firm are expected to deploy capital over the first few years and generate returns by the end of the cycle. That clock starts ticking the moment the fund closes.
What VCs are actually investing in
VCs don’t just invest in ideas—they invest in growth potential. They’re betting on early-stage companies that could become dominant players in their category. In biotech, that usually means platform potential, proprietary IP, a credible path to approval or acquisition, and an exit strategy that matches the VC’s return expectations.
Startups are expected to raise multiple rounds—seed, Series A, B, C, and beyond—with valuations increasing along the way. Each round dilutes the founders, but (ideally) adds value and extends the company’s runway.
Why ownership matters
Venture firms typically aim to own 15–25% of a company post-investment, especially in early rounds. That ownership stake gives them influence, often a board seat, and a meaningful slice of potential upside in a liquidity event (IPO, acquisition, or secondary sale). That influence can shape major decisions—whether the founding team is ready or not.
What VCs are optimizing for
VCs expect a small number of companies to generate the majority of returns. That means they often take a portfolio-wide view: they’ll encourage risk-taking, aggressive growth, and sharp pivots if it increases the odds of a big win—even if it shortens the lifespan of companies that don’t make it.
In short, venture capital is built to produce outliers, not sustainable small businesses. That’s not a bug—it’s the business model.
The Good: What Venture Capital Does Really Well
For all its risks and trade-offs, VC funding exists for a reason—and when aligned with the right team and opportunity, it can be a powerful force for growth, innovation, and impact. Here’s what it genuinely does well:
1. Capital at scale: Biotech startups are expensive to build. You’re not just launching an app—you’re running preclinical studies, filing with regulators, hiring scientists, and possibly manufacturing at scale. VC firms can write the kinds of checks—often $5M to $50M+—that very few other funding sources can.
2. Speed and signal: Raising from a top-tier venture capital firm doesn’t just give you money—it gives you credibility. That signal can help attract other investors, pharma partnerships, media attention, and key hires. It also helps you move faster than startups relying on grants, family offices, or traditional loans.
3. Strategic partnerships: Experienced VCs don’t just bring capital. Many are former operators, scientists, or investors with deep domain knowledge. The best venture capitalists know how to help shape product strategy, guide regulatory navigation, or open doors with potential partners or acquirers.
4. Support through growth: If your company is performing well, VC firms are often willing to double down in later rounds. That continuity of capital can provide stability as you grow, pivot, or scale toward commercialization.
5. Risk-tolerant capital: Unlike lenders or private equity, VCs expect many of their portfolio companies to fail. That means they’re often willing to take early bets on moonshot ideas—platforms, therapies, or models that wouldn’t get support anywhere else. For truly high-risk science, that flexibility is crucial.
At its best, venture capital can help turn pioneering research into market-shaping companies. But those benefits come bundled with trade-offs—and those trade-offs aren’t always obvious at the beginning.
The Bad: What Founders Don’t Always See Coming
Venture capital can open doors—but it also closes off others. What gets glossed over in pitch meetings often shows up later on term sheets, board calls, and cap tables. Here’s what many biotech and life sciences founders learn the hard way:
1. Dilution is inevitable—and often steep: Each funding round reduces your ownership. Raise too much too early, or misprice your round, and you can quickly find yourself owning a small fraction of the company you founded. Dilution isn’t just financial—it also affects control and decision-making.
2. VCs may have different definitions of success: Your goal might be to build a sustainable, long-term company. A VC’s goal may be to drive toward an exit within 5–7 years. That can lead to tension around timelines, capital allocation, hiring decisions, and even whether to pursue an acquisition versus an IPO.
3. Board control can shift quickly: With every new investor, voting power and board influence shift. Founders who don’t pay attention to governance structure can end up with limited say in key decisions, including fundraising terms, executive hires, or go-to-market strategy.
4. Growth is often prioritized over fundamentals: VCs invest in high-growth potential, not necessarily in steady fundamentals. That can lead to pressure to expand faster than your science or operations can realistically support. In biotech, where validation takes time and risk is scientific, that pressure can backfire.
5. Not all VCs are hands-on—or helpful: Some venture capitalists are deeply engaged, mission-aligned, and value-adding. Others are passive or overly financial in their thinking, offering little beyond capital. The wrong investor on your board can become a drag rather than a boost.
6. The funding treadmill is real: Once you raise venture capital, you’re often locked into the cycle: raise, spend, hit milestones, raise again. That can be energizing—or exhausting. And if the market turns or your metrics slip, access to capital can disappear fast.
Founders don’t need to fear these risks—but they should go in clear-eyed. Venture capital is a tool. Misused, it can distort your vision. Used wisely, it can amplify it.
Here’s a Take: Maybe You Don’t Need VC
Here’s something that doesn’t get said enough in the startup world—especially in biotech: venture capital isn’t always the right fit. It’s easy to assume VC is the default path to legitimacy or scale. But for some life sciences companies, raising venture funding can actually do more harm than good.
Not because VC is bad—but because it may not match your goals, business model, or timing.
Maybe your company is developing a niche diagnostic with modest revenue potential but strong clinical value. Maybe your IP is promising, but the path to commercialization is 10+ years. Maybe you’re building something valuable, but not “venture-scale”—meaning it won’t return 10x in 5–7 years, and that’s okay.
That raises a fair question: if not VC, then where does the money come from? Biotech and healthcare founders have more options than they often realize:
- Non-dilutive funding: Government grants (NIH, BARDA, SBIR), academic translational funding, or disease foundation support can provide early capital without giving up equity.
- Pharma partnerships: Larger companies may co-fund R&D or provide milestone payments in exchange for licensing or data rights—especially for therapeutics or platform tech.
- Angel investors and family offices: These investors sometimes have longer horizons, more flexibility, and are less rigid about growth velocity.
- Private equity (later stage): In capital-efficient businesses with revenue or assets, PE firms may support scale without the burn rate expectations of VC.
- Customer-driven revenue: In some healthtech or services models, building around paying customers—even if slower—can provide control and optionality down the line.
And for many, the answer isn’t binary. Some of the strongest biotech companies blend capital sources over time. They might start with grants, layer in a small angel round, bring in VCs during a Series A, and pursue strategic partnerships post-clinical validation. It’s not about choosing one path forever—it’s about knowing what you need now, and what you’re committing to when you take it.
So yes—venture capital can be transformative. But it’s not required. And sometimes, being intentional about how you fund your company can be just as important as what you’re building.
How to Approach VC With Eyes Wide Open
Queue the Creed memes. (Or maybe there’s a reference to Eyes Wide Shut we can work in.)
If you’re considering VC funding—or you’re already in early conversations—the goal isn’t to avoid risk. It’s to understand the rules of the game before you play it. Here’s how to walk into the process with your eyes open:
1. Know your endgame: Do you want to build a unicorn, or a sustainable business with steady returns? Are you aiming for IPO, acquisition, or long-term independence? Your honest answer should shape whether VC makes sense—and how much you’re willing to trade for it.
2. Understand dilution before the term sheet hits: Model out ownership across funding rounds. Know what 20% dilution means today versus after your Series B. Talk to founders who’ve raised before. The earlier you internalize the impact of equity trade-offs, the better your negotiating position.
3. Do due diligence on your investors: You’re not just raising money—you’re adding long-term partners to your cap table. Ask other founders how they operate. Find out how they behave when things don’t go according to plan. Culture fit matters just as much as check size.
4. Build optionality into your plan: Avoid becoming dependent on a single capital source. Structure early rounds in a way that gives you flexibility—whether that’s through milestone-based tranches, non-dilutive complements, or hybrid partnership models.
5. Protect your mission, not just your margin: Biotech, healthcare, and life sciences startups often emerge from deep scientific or clinical missions. Don’t lose sight of why you started. The best VCs will help you scale your impact—not dilute your purpose.
6. Time your raise intentionally: VC funding isn’t just about getting a check—it’s about when and why. Raise when you have a compelling milestone, not just when your runway is shrinking. Position your story around value inflection, not desperation.
VC funding can be a rocket fuel—but rockets need direction. With the right mindset, the right partners, and the right structure, you can use venture capital to build something that lasts beyond the next round.
Conclusion: Capital Is a Tool, Not a Compass
Venture capital can change the trajectory of a biotech startup. It can turn bold science into real-world therapies, open doors to partnerships and talent, and move timelines that would otherwise take decades. But it’s not magic—and it’s not free.
For founders in biotech and life sciences, understanding how VC works isn’t just good business—it’s essential strategy. The more clearly you understand the incentives, trade-offs, and expectations behind each funding decision, the better positioned you’ll be to build something that lasts.
VC isn’t right for everyone. But if it’s right for you, it should serve your mission—not replace it.