The Logic Behind Life Sciences Fundraising: Four Things to Get Right Before You Pitch

The struggle they have is rarely about the quality of the technology. The challenge is to make an investible case for that specific company and technology. And for many Life Sciences founders, this math is fundamentally flawed.

Make sure your investment plan is right from the start

Founders launching a funding round often cast a wide net. They pitch to ten investors and get ten different responses: “Come back in six months,” “Your round is too small,” “We don’t invest at this stage,”. They keep on shaping their investment plans based on the feedback they receive. Months go by, energy is wasted and in the meantime, progression slows down.

Those are the iteration cycles that break your financing strategy. And it can largely be avoided if you carefully consider these things in advance: 

• What is the maturity of your company (Stage)?
• What are you going to realize (Milestones)?
• How much do you need for that (Ask)?
• And who is able to finance this (financing & investor type)?

1. Start with the exit in mind, not the first round 

Most founders think from left to right: “I’m here, I want to get there, how much do I need?” The better order is the other way around.

Start with your company’s exit potential. What is your company worth if everything works out? Look at comparable companies in your subsector, with comparable technology and a comparable patient population. That will give you a range. Are we talking about €100 million, €500 million, or a billion?

That range determines how much you can raise in total and from whom. An investor who wants a 20x return on his €10M investment isn’t a good fit for a company with an exit potential of €50 million. Not because it’s a bad company, but because the math doesn’t add up. If you raise €10 million and the exit is €50 million, this investor won’t have anything left after their return.  This sounds harsh. But an investor who figures this out will say no. 

You need to do the math and find the investor that fits with that potential.

2. Think in phases, not in total amounts

Life Sciences companies rarely raise everything they need in a single round. That’s not the point, anyway. Each phase has its own milestone, its own proof of concept, and its own value valuation points.

Make sure you’re very clear for each round: What am I de-risking here? What value am I creating with this money? And what type of investor is a good fit for this level of risk and this stage?

A seed investor expects different proof than a Series A investor. A seed investor gets in early, takes on more risk, and wants to see that the core assumptions are validated. 

A Series A investor wants clinical or commercial proof. A Series B investor is looking for scalability. These expectations are not interchangeable.

Also make sure the size of your round aligns with that investor’s mandate. A small round with a large fund manager won’t work. Nor will the reverse.

3. Not every investor is a good fit for every Life Science company

There are major differences within Life Sciences. Biotech, MedTech, Digital Health, Diagnostics: each subsegment has its own investor landscape, its own timelines, and its own exit strategies.

Moreover, not every company fits a traditional VC structure. If your exit potential is limited because the market is small or your business model doesn't match with their preferences, you’ll need to adjust your funding target audience accordingly.

Perhaps impact-driven capital is a better fit. Or a combination of grants, loans, and a smaller funding round. Or a service model alongside product development, so you can generate revenue while continuing to build.

That’s not a shortcoming. It’s a choice you must make consciously, based on what your company can realistically offer to make sure you find the right investors as soon as possible..

4. Build investor relationships before you actually need them

An investor doesn’t get involved in your company just because you sent a pitch deck. They get involved because they see the progress that you make.

Most founders only start networking when they need money. But that’s too late. Especially for investors who come on board at a later stage, they have little reason to invest a lot of time in you right now. But that doesn’t mean you can’t stay in touch with them.

Send them a brief update every now and then. Talk to them at events. Show them you’re on track, and ask for advice from time to time. That feels unnatural to many founders. But that’s exactly how trust is built.

By the time you get close to the stage where an investor becomes active, the foundation is already there. You’re no longer a cold contact and you can get the best shot at investment.

What mapping out a Life Science funding path means in practice

Therefore, think about your funding path early on. Not just when you need money, but as early as the stage when you’re setting up your company. Ask yourself the following questions:

• What is my company’s (exit) potential?
• What type of investor aligns with that potential?
• What are the milestones for each phase, and what do they demonstrate?
• How much do I need per round, and does that align with the investor’s mandates per phase?
• Which investors in my field are relevant for each phase?

Once you’ve answered those questions, the iteration cycle becomes shorter. Not because you pitch better, but because you approach the right people at the right time, with the right story. And if the story is right, you don’t even really need to “sell” it anymore.

Want financial advice for your Life Sciences company?

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