Who Is Funding the Science That's Too Early for Venture Capital?

For years, the path from a university lab to a funded biotech startup ran through a predictable sequence: federal grants covered the earliest work, and venture capital picked up where the government left off. That pipeline has broken down. Federal research funding is being cut at a scale not seen in decades, and the venture capital that remains is concentrating in fewer, larger bets on companies that have already proved their science works.

The result is that founders are being pushed toward private capital earlier than they would have gone historically, and the private capital they're finding wasn't built for where they are.

"One of the things we've seen over the last several years are more challenges on the early-stage grant side of things, which has created a new opportunity for the private markets to help finance some of this early-stage scientific work," said Caleb Appleton, Partner at Bison Ventures. "The fundamental tension there, though, is people like myself and venture capital are historically used to seeing things that are a little more de-risked, and so I think that's created a bit of a disconnect."

Companies that might have spent another year or two on non-dilutive government financing are now approaching VCs much sooner. Appleton says both sides are still figuring out how to navigate that.

The Haves and the Have-Nots

Venture capital remains a major driver of biomedical innovation, but its behavior has changed. Investors are placing greater emphasis on mature science, experienced teams, and clear paths to commercialization.

"VC funding ebbs and flows across all sectors and stages," said Carter Caldwell, MBA, an entrepreneur, investor, and the Penn Medicine Co-Investment Program Director at the University of Pennsylvania. "Unfortunately, the last four years have been particularly difficult for the biotech and life sciences sector. As is also usually the case, the technologies with the most demonstrable and best defensible data get funded."

The consequence is that the money is concentrating. Appleton describes a split between a small number of heavily financed companies and a much larger number of those still struggling to close a first round.

"The stat that sticks with me is that last year…the average series A was something like $100 or $110 million, which is greater than the average Series B, Series C, or series D financing in biotech, where historically you saw the opposite," Appleton said. The data supports it, showing massive Series A rounds becoming increasingly common. Mirador Therapeutics, an inflammatory disease startup, launched in 2024 with a $400 million Series A. Avenzo Therapeutics, an oncology company developing cancer therapies, closed a $386 million Series A/A-1 the same year, then raised a $60 million Series B, a fraction of its first round.

That inversion matters. Five years ago, a seed round of tens of millions was the exception. Now Appleton says he sees it on a monthly cadence. "And so that means for the first time ever there are extremely well-financed businesses, many of them almost immediately from their outset. And there's many more businesses that are struggling to find that initial bit of financing."

Shalabh Gupta, MD, Founder and CEO of Unicycive Therapeutics Inc., points to another pressure. The IPO market has thinned, which means VCs are waiting longer for exits and recycling capital into existing portfolio companies rather than making new bets. "So in other words, if [VCs] had a pool of money, instead of investing in newer startups, they are funding their existing startups."

The Work That Goes Unfunded

The squeeze hits hardest at the earliest stages, where science is promising but unproven and patient populations may be too small to attract commercial interest. Rare disease research, high-risk basic science, and programs without obvious commercial pathways are most vulnerable.

But Gupta says some of the reasons promising work goes unfunded are within the founder's control. Scientists coming out of academia sometimes chase the program they're most passionate about rather than the one most likely to attract capital.

"You have to be willing, absolutely be willing to say to yourself: Not the program that I wish to run, but the program that will help the company to survive," Gupta said. "And these are sometimes two very different things. Because people come from a scientific background, they have a passion, they have been working in that particular field for a while. But if the investors are more interested in a different indication, then one has to be willing to make that course correction early on."

He frames the founder's job not as pursuing science in a vacuum, but as creating value across a set of stakeholders: investors, the management team, patients, and physicians.

What "Fundable" Actually Means

Appleton draws a specific line. For his firm, a fundable company has moved past hypothesis risk and into engineering risk.

"What I mean by that is there is a data package showing that the core thesis or hypothesis of the company is validated, though needs further maturation or development that might [help] scale up the technology. But fundamentally, you're not doing science which is better served by historic research institutions. You're really doing product development."

He also warns against stacking risks unnecessarily. If a company has a novel platform, it should apply that platform to known biology rather than pairing a new tool with an unvalidated target. "You don't want to stack, say, novel target risk on top of novel platform risk, because now you have two cascading low probability events that need to align to drive success."

Gupta adds that for early teams without a track record, surrounding the founder with experienced operators matters. "Founders have the vision, but that vision becomes reality by the people who surround the founder."

Beyond the VC Check

With traditional pathways narrowing, founders are looking beyond venture capital, exploring strategic partnerships with pharma companies, accelerator programs, milestone-based financing, and crowdfunding. Philanthropy, in particular, has become a real funding channel, not just a supplement.

"Philanthropic options are some of the best sources of funding," Caldwell said. "There is often an interest group for just about every indication and they want to advance treatments."

Some of these organizations make traditional venture investments. The American Cancer Society's BrightEdge, CureDuchenne Ventures, the Leukemia and Lymphoma Society, and the Michael J. Fox Foundation all operate this way. Others, like The Friedreich's Ataxia Research Alliance, offer non-dilutive grants. The Epilepsy Foundation runs a Shark Tank-style competition that makes capital investments into participating companies.

Gupta says founders also need to sharpen their focus. Rather than running four programs, pick the one trial or experiment that will generate the most value per dollar. "That is something which requires very powerful decision making," he said. "It's not the one that you love the most. Is the one that will give you the next sort of funding."

Appleton's advice is blunter: make sure you're selling something people want to buy. Founders who can articulate a massive opportunity and explain why their work is meaningful to funders will find capital. Those pitching something that feels incremental, or who can't deliver a clear story, will spend many cycles trying to raise and may not get there.

"Fundamentally, early-stage venture capital is about a team and an idea, and a story associated with those two things," Appleton said. "It's probably harder than it's ever been, and that first round of financing is the most challenging for those teams."

Gupta puts it more simply. When talking with investors, founders need to be able to answer one question without a second’s hesitation: "What would you do next if I gave you the money?"