A double-edged sword: VC timelines are getting longer in biotech

The biotechnology sector has always been characterized by long, uncertain timelines. But with increasing scientific, regulatory, and market complexities, biotech development is now taking longer and costing more than ever before. Investors are being faced with a growing gap between initial investment and successful exit, and it’s vital for entrepreneurs to know how to handle this shift.

By Shelley Margetson for V-Bio Ventures

Biotechnology is an inherently high-risk, high-reward industry. Developing a new therapeutic or diagnostic involves years of preclinical work, clinical trials, and regulatory review – all of which require significant money and time.

But the complexity and capital requirements of biotech R&D have been steadily increasing, putting pressure on both entrepreneurs and VC firms. Everyone is having to make investment plans with the shared understanding that a successful exit may lie on an increasingly distant horizon. So why is this happening, and are there any positives for entrepreneurs?

Why biotech timelines are getting longer

There are several trends contributing to lengthening timelines in biotech development. Some key factors include:

• Regulatory complexity: Regulatory requirements are increasingly complex and fragmented across regions. Agencies like the FDA in the USA and EMA in Europe are demanding more extensive safety and efficacy data, making the journey to approval especially challenging for novel or first-in-class therapies. For pioneering companies, the process is often iterative and prolonged, involving shifting expectations and evolving trial designs.
• Rising capital requirements: Biotech companies – particularly those working on high-risk or first-in-class therapies – require substantial capital to complete clinical development. Early-stage funding rounds are often not sufficient to carry a company through to exit or commercialization, forcing startups to tap into multiple funding sources or to increase the capital raised in a round, where larger rounds also contribute to longer timelines.
• More complex science: As the biotech sector matures, companies are increasingly focusing on areas like cell and gene therapy and personalized medicine – solutions which require substantial time for validation and proof of concept, and that often encounter higher failure rates or unexpected challenges.
• Macroeconomic uncertainty: Recent market conditions, such as the COVID-19 pandemic and economic volatility, have disrupted clinical trials and created uncertainty around market demand. This has made investors reluctant to rush toward exits, preferring instead to support portfolio companies over longer periods to ensure the stability and success of the ventures.
• Exit challenges: IPO markets can be volatile and M&A activities in biotech have slowed of late, as large pharmaceutical companies are more cautious with deals. This is driving investors to adjust their expectations, as they recognize that they may need longer than the typical 5-7 years to realize the full value of their investments.

The implications for biotech companies

For biotech entrepreneurs, the shift toward longer timelines offers both opportunities and challenges. The trend is opening the door for companies to secure more capital over a longer period, which can help ventures weather the long R&D cycle. Companies can also benefit from deeper, more meaningful relationships with investors, who are more likely to act as long-term partners and mentors rather than short-term financiers.

“Managing the balance between scientific innovation and investor expectations has become a critical skill for biotech founders.”

However, in this new environment, entrepreneurs must manage investor expectations more carefully. Extended investment timelines can lead to investor fatigue or pressure for milestone-driven progress, which may not always align with the scientific realities of drug development. Managing the balance between scientific innovation and investor expectations has become a critical skill for biotech founders.

How to get ahead of the game

Clear, strategic planning is essential for biotech entrepreneurs trying to adapt to the times. CEOs need to think ahead, developing business plans that map out long timelines, well beyond the next round of funding.

From a VC perspective, investors are expecting these longer-term plans to include various scenarios at each value inflection point, providing stakeholders with options on each next step. It is also critical for companies to obtain robust, properly documented preclinical data early on, which can be used to accelerate regulatory approvals and secure the funding needed to further develop the program at a later stage.

Read this article on how to foster a good founder-VC partnership!

It’s essential to find a balance between executing the business plan in a focused way, whilst still allowing space for new innovative ideas. Entrepreneurs can help create that space and flexibility through clear, timely and proactive communication with their investors, making sure that all parties are aligned and onboard with any changes. Trust and communication are key when you’re in it for the long haul.

Don’t leave things too late

At V-Bio Ventures, we truly believe that the relationship between entrepreneur and investor is vital to the success of a venture. As such, we always recommend that companies should carefully consider which VC is the best match for them, rather than just looking at the size of the investment or eagerness of the fund. An important element is finding investors whose experience is well aligned with the technology or indication. Do your research, and bear in mind that a company-VC partnership is always meant to be a mutually beneficial relationship.

“Bear in mind that a company-VC partnership is always meant to be a mutually beneficial relationship.”

Entrepreneurs can also pave the way for future funding rounds well in advance, by attending and speaking at conferences to improve the company’s visibility, meeting with preferred VCs, forging connections with CROs, as well as engaging key opinion leaders to support development and strengthen the company’s story. Well before pitching, a company can take steps to pave the way towards successful fundraising.

Sow the seeds for a fruitful relationship

And finally – to address the longer timelines and more involved commitments that come with them – there are several ways that entrepreneurs can adapt when raising a funding round. When preparing their pitch deck, it is vital to take your time and plan ahead, clearly indicating the use of proceeds and expected timelines. It’s also essential to make sure your data room is well populated, to ease the due diligence process for investors who will want to be careful before committing to a long-term investment.

With longer timelines in biotech development, it’s more essential than ever for entrepreneurs to build positive, secure partnerships with their investors. Our recommendation: sow the seeds for a fruitful investor relationship well before you’ll need to reap the rewards.