Biotech VC funding points to early-stage funding gaps

As attention-grabbing as AI might be for the media and large investors (see previous SSTI analysis of AI investment), economic growth through innovation in life sciences and biotechnology is a priority for many state and regional TBED initiatives.  The venture capital market recognizes that as well.  In fact, Pitchbook estimates the broad biotechnology sector (comprising life science, pharma, health care, devices, etc.) captured 14% of all deals so far in 2025, making it the second largest investment group after info tech this year to date.  

Subsequently, SSTI wonders in this article: what does the health and composition of the biotech equity investment market tell TBED practitioners for any needed tweaks or changes to life science-driven regional innovation strategy?

Biotechnology is an expensive business, and most startup and small companies will require significant outside funding; “bootstrapping” a biotech company isn’t a realistic approach in all but the rarest circumstances. In a review of VC investments made to date in 2025, we find biotech deals tend to be larger and later than those in the rest of the VC market  portfolio.  We also see more limited numbers of early stage biotech investments that fund critical milestones and derisking activities.  These resource gaps likely lead to missed opportunities to launch new companies and innovations. For the TBED community, evaluating the availability of early-stage biotech funding and incorporating the funding gaps into program design and company strategy is an important consideration.

This Digest article explores recent biotechnology investment activity as distributed across deal sizes, stages of development, and geography.  SSTI’s review also excludes the largest deals in the biotech space. Only 4% of VC investments involve deals valued over $100 million, yet that small group captures 68% of all recent VC investments. Eliminating those deals when characterizing the data presents a clearer picture of the equity finance market in which the vast majority of regional venture development takes place.  

For VC activity under $100 million so far in 2025, biotechnology firms were the targets of 1,040 deals totaling nearly $13 billion. Biotech investments comprise 18% of aggregate VC investment dollars (Figure 1).

Figure 1. 2025 Biotech deals and capital invested compared to the VC market under $100 million.

Biotech investment does not share the same distribution as the total market and takes a larger share of activity as investment size increases. Biotech investment is just 9% of total VC activity in the $500,000 to $1 million range, yet grows to 20% of capital and 19% of deals for transactions between $25 million and $100 million. . T

Another way to examine the distribution of investments is to compare how deals and dollars are distributed within the biotech industry with those of the entire VC market. The share of deals from $0 to $5 million is lower for the biotech industry and higher for deals from $5 million to $100 million. The share of biotech dollars lags the market for all deals under $25 million. The largest share of deals for both groups is in the $1 million to $5 million range, with approximately 25% of deals. Notably, there is a significant drop in activity in the $500,000 to $1 million range, with only 11% of total deal activity and 7% for biotech (Figure 2).  

Figure 2. Distribution of 2025 investment activity under $100 million within the biotech subset and market as a whole.  

The distribution of investment activity highlights the potential funding challenges faced by early-stage biotech companies, particularly those seeking less than $1 million. TBED organizations working with companies, regardless of industry, that are targeting funding rounds less than $5 million should carefully evaluate how companies are positioned in this highly competitive market segment.  

Examining the distribution of investment activity across deal types can pinpoint where investor gaps may exist. For biotech, a larger share of companies secure grants and later-stage VC investment than the broader VC market. For biotech deals, 9% of transactions were grants and 44% were later-stage VC, compared to 4% grants and 28% later stage for all VC deals. Biotech lags the larger market in access to capital from incubators and accelerators, angels, seed funds, and early-stage VC (Figure 3). The concentration of funding in later-stage investments and reliance on grant funding to support derisking activities may pose systematic challenges for early-stage companies, particularly with the uncertain future of grant resources and limited opportunity to leverage the motivations and networks of early investors.

Figure 3. The 2025 distribution of investor deal type for biotech and total VC markets under $100 million.

Biotechnology investment reveals a different geographic distribution pattern than AI and information technology discussed in a previous Digest article—reflecting the unique research assets required for advancing ag- and life-science innovation. As such, one can expect biotechnology to capture varying shares of VC within a state. This variation may become an important indicator for future TBED policy design if biotech stakeholders in the state believe the market is not fully capitalizing on the innovation potential of the state biotech research enterprise and related assets. Figure 4 shows each state’s biotech deals and dollars as a percentage of all VC activity.  

The size of the circles in Figure 4 represents the number of companies funded. Massachusetts is the strongest overall biotech market with 133 companies receiving 32% of deals and 46% of dollars. Minnesota leads the nation so far in 2025 in concentration of biotechnology investment activity, with 40% of deals and 52% of dollars going to 32 companies. Other states have relatively high deals or dollars, though they tend to lack overall deal flow. There is some clustering between 10-15% of deals and 15-20% of dollars, which aligns with the national data. Overall, most states have notable biotech activity, though there is geographic concentration where it takes a larger share of local activity.

Figure 4. 2025 VC investment under $100M by state.

The relative lack of small investment dollars and early-stage funding highlights important policy questions for regions with strong biotechnology research pipelines and existing startup activity. Without the resources to meet important early milestones, biotech companies are likely to struggle with securing investment from later-stage, national investors looking to make large investments in derisked opportunities. These gaps in early-stage resources create an opportunity for TBED intervention. Policymakers in these regions can take a close look at their local markets and develop targeted interventions to systematically prepare companies to access later stage investment from national firms. Further, exploring the opportunity to invest in biotech companies with regional angel investors and seed funds may provide an avenue to increase the critical derisking resources available for companies and prepare them to attract the interest of larger, national firms.  

TBED practitioners and policymakers are reminded however that biotechnology innovation, investment and entrepreneurship take different skills than most other sectors. Participants must understand the science underlying the discoveries and approaches. The biotech entrepreneurial support and investment communities also must have developed expertise and strategy consistent with the technical and regulatory needs of biotech companies.

If you work with biotech companies and are seeing some of the same funding challenges, what solutions have you been able to develop? If you have experience in this space or are interested in exploring this topic further, please reach out to Aaron Hagar at [hagar [@] ssti.org] and help us identify what additional resources are needed to support the continued strength of this critical industry.