To thrive in today’s selective funding landscape, Biotech companies must consider the criteria behind venture capital investments. Here are the 8 most common criteria VCs use to evaluate Biotech in 2024, according to VC.
Amidst a post-pandemic economic downturn, heightened risk has led venture capital firms to adopt a more selective approach to funding—carefully choosing around which and how many Biotech they want to invest in.
As this trend carries on and the number of venture capital funding is still awaited to rebound, attracting VCs and securing investments will remain a challenging enterprise for Biotech this year.
Based on our survey with 50+ prominent Venture Capitalists, we have identified 8 criteria that shape how biopharma-focused VCs evaluate potential Biotech funding in 2024.
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The Top 8 Criteria VCs Will Consider Before Funding Biotech in 2024
1. Innovative Science
Groundbreaking technology that significantly improve upon existing therapies or that address unmet medical needs like cancer, rare genetic disorders and chronic diseases. For instance, companies developing precision medicine, advanced gene editing technologies, or novel drug discovery methods tend to attract VCs’ attention.
“We are not necessarily focused on specific modalities. What we are really looking for is unique, disruptive and effective technologies—that we feel like Pharma could be attracted to in the forthcoming years.”
Senior Partner | US-based Healthcare VC
2. Strong Scientific Data
The strength of the science behind the company is crucial—particularly in the current context, where investors tend to play safe. VCs will back Biotech that have established proof of concept and assess the robustness of the preclinical data, as well as the potential for scientific breakthroughs that could lead to effective treatments.
3. Experienced Management Team
Tried-and-true management teams with experience in biotech and drug development are highly valued. VCs look for teams with a track record of successful exits, deep industry knowledge, and ability to navigate complex regulatory environments.
4. Market Potential
VCs evaluate the potential market size for the company's products or therapies, considering factors such as disease prevalence, competitive landscape, and the likelihood of successful commercialization.
5. Robust Supply Chain
Contract Services Partners that offer innovative technologies and flexibility to pivot or scale a project are essential ingredients to Biotech success. VCs scrutinize the equipment, scalability, quality compliance and track record of CROs & CDMOs before investing—hence mastering sourcing and supply chain management is key to attracting them.
“CRO & CDMO selection is very important to us. When we invest in a Biotech, we make sure that their team has enough experience to select and challenge potential service providers, because we have lost a lot of value partnering with the wrong ones in the past.”
General Partner | Swedish Healthcare VC
6. Regulatory Strategy
Given the heavily regulated nature of the biotech industry, VCs consider the regulatory pathway for the company’s products. A sound understanding of the regulatory landscape and a realistic plan to navigate clinical trials is essential.
7. Intellectual Property
VCs look for a robust portfolio of patents and trademarks that safeguard core technologies and processes, ensuring exclusive rights to commercialize innovative therapies. Strong IP protection minimizes competition and enhances a company's valuation.
8. Financial Health and Projections
VCs evaluate the company's burn rate, capital efficiency, and runway to ensure it can fund operations until the next major milestone or funding round. Detailed financial plans demonstrating cautious resource management are particularly persuasive.
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