July 31, 2025
Article
‘Barbell Effect’ Reshapes Funding for Healthcare Entrepreneurs

Overview
As Series B capital gets harder to secure, companies raise more in earlier rounds to reach value milestones.
Early-Stage Startups Stretch Series A Rounds to Avoid Tougher Market Later
Healthcare startups are adapting their funding strategies to stretch early-stage funding in response to the harsh investment climate of the last few years, according to a new report by Silicon Valley Bank (SVB).
The banking firm noted in their 2025 mid-year investments and exits report that early-stage companies are raising significantly larger initial rounds, often with extensions, to avoid returning to market prematurely. This has created a “barbell effect,” where Seed and Series A rounds have swelled, while Series B and C activity has thinned. It’s a departure from the previous cycle, where healthcare companies often returned to market quickly, sometimes without reaching clinical proof-of-concept.
“Is the Series B challenge a symptom of a tougher market, or simply a reflection of startups strategically raising enough in their Series A to reach critical value inflection points before seeking additional capital?” said Jackie Spencer, Head of SVB’s U.S. Relationship Management for Life Science and Healthcare banking, in the report.
Investors “are no longer satisfied” with promises of future breakthroughs and potential profits. They are more interested in companies with concrete plans, strong market presence and robust clinical evidence, according to the bank.
Private Markets Improve
Despite the funding challenges, SVB’s outlook for private investment is more positive than other recent assessments (see “Startups Face Bleak Funding While Women-Led Firms Score Rare M&A Wins.”) The report states that “private markets are looking better than they have in years,” noting a shift away from 2021’s hype cycle toward more sustainable growth.
“Valuations are making more sense,” Spencer wrote. “There’s less hype about AI changing the face of healthcare, and more focus on powerful tools making a difference in unseen ways.”
While the report echoes prior findings that later-stage companies face more scrutiny, it sees cause for optimism among early- and mid-stage startups able to adjust. Strong exits, while still rare, could help unlock more capital. A sustained rally in public markets and interest rate cuts could also shift sentiment.
Some areas in the sector are attracting more investor interest than others. In diagnostics and tools, minimal residual disease tests, which are used to detect tiny traces of cancer left after treatment, continue to attract capital, thanks to strong commercial performance and their growing role in guiding treatment decisions and clinical trial designs.
MedTech Investments Continued to Surge
MedTech investment is being driven by administrative and operational tools that show measurable returns, particularly in revenue cycle management and patient communications. AI-powered applications accounted for half of all investment in the space (see “AI-Powered Companies Dominate 2025 Digital Health Funding.”)
“A revenue cycle platform that can process as many appeals in an hour as manual reviewers can in a week, or that reduces denials by 10 percent, might not make for punchy headlines, but it could be the difference between a hospital staying open or closing,” Spencer said.
Meanwhile, device companies have remained steady since 2022, drawing between $3 billion and $4 billion in investment each half-year. But uncertainty around Trump’s tariffs may slow momentum in the second half of 2025, especially in hardware-heavy subsectors like neuromodulation and surgical robotics (see “Drugmakers Brace for Trump-Era Shifts on Tariffs, Manufacturing and Regulation.”)
U.S. Biopharma Investment Remains Muted
The report attributes this sentiment to poor returns among public companies in the space, deterring generalist investors who can look elsewhere for better profits. SVB suggests M&A and interest rate cuts “could be the catalyst to positively shift the sentiment,” according to the report.
One outlier is China, where biopharma investment has sharply rebounded. After drawing less than $1 billion in 2022, Chinese startups in the sector raised more than $3 billion in the first half of 2025 alone.
Corporate venture capital is also playing a more prominent role, particularly in early-stage biopharma. SVB reports that startups backed by the venture arms of large pharmaceutical companies tend to outperform their peers, offering strategic advantages for both sides. With Big Pharma under pressure from expiring patents, internal pipelines, and pricing scrutiny these partnerships may continue to grow.
“Big Pharma is especially reliant on the innovation ecosystem,” Spencer wrote. “Expiring exclusivity rights mean they desperately need to refill pipelines and find new blockbusters, and for that they need a research and startup pipeline exploring novel therapeutics.”
SVB’s analysts see the present as a moment of transition, not contraction.
“We’ve weathered storms before,” Spencer said. “It’s an exciting time.”