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Increase your fundraising success by understanding the dynamics of the venture capital landscape

As a director of an innovative company, you might consider the current economic downturn as a major roadblock for your business development. Let’s put that into perspective: even in good times, fundraising through venture capital has a success rate of less than five percent. So, if you have a promising business idea in life sciences or health, you don’t need to wait for a more favorable economic climate. You need to start thinking about your financing strategy, tailored to the current VC landscape. 

A sound financing strategy is essential for fundraising through venture capital (VC). It needs to be compelling to the active investors to successfully negotiate a strong company valuation and raise capital in accordance with your needs. Especially when the market is competitive, it could be very helpful for you to have a good understanding of what the specific challenges are today. In this blog post I would therefore like to explore the shifting dynamics of investment strategies and VC landscape trends. 

Booming life sciences Venture Capital funding 

When we look at the figures over the past decade, they clearly show that the landscape is changing. For example, let’s dive into the early-stage funding rounds for the development of therapeutics in the EU. Over the period 2014-2020, there has been an increase of 42.3% in the number of VC deals for Seed and Series A rounds, while the total capital invested has increased by no less than 233%. It is a biotech-wide trend of increasing ticket sizes for early-stage investment rounds that you need to be aware of when raising funds in Seed or Series A rounds. 

Availability of capital 

The increased competition and higher ticket sizes by competing firms have been driving up the valuations of biotech companies. To better understand what sort of effects this has, my colleague Siebe Warnars interviewed several life science VCs in Europe. One Dutch Seed investor told him: “We are currently experiencing a lack of co-investors within the € 5m to € 10m range in the life science scene in the Netherlands.” His statement fits within a broader trend of a declining number of VCs who can or want to deploy smaller tickets. 

The downside of successful fundraising 

Biotech companies have been successful at fundraising in recent year, but arguably too successful. VCs have altered their investment strategy by increasing their ticket sizes through longer in-house financing. This allows them to reduce risk, create value earlier on, and obtain a larger share of the company in the long run. Meanwhile, the increased ticket sizes, which have resulted in inflated post-money valuations, place life sciences companies in a difficult position when follow-up investment rounds are needed or at the moment of exit. 

How does this affect your venture? 

Of course, the crucial question for you as an entrepreneur in life sciences or health is: how am I affected by these trends? As I wrote at the beginning of this blog, you should not let the economic downturn hold you back if you have a promising business idea. The current economic situation simply emphasizes the importance of being completely investor-ready and ready for the right ticket size. 

You need a well-defined and long-term development plan, a clear business case with a strong business approach, a thorough IP strategy, and a solid financing strategy – all the way to the endgame (exit, deal, or product on the market). Investors know exactly how to gain the most from their investment and so should you. 

Download our White paper 

Are you interested in learning more about how the current climate may affect your business? Download our latest white paper on the shifting dynamics of investment strategies and VC landscape trends. 

About the author
Picture of Maurits van den Nieuwboer

Maurits van den Nieuwboer