Securing Capital At The Right Moment: How Much Should Startups Ask For?

By Michael Brooder

Funding for life science startups seeking to raise capital has been tight for the past four years. While there was optimism that 2025 may change the tide, we have not yet seen an ease in the flow of funds for our industry. Capital markets have been more selective in the life science arena, particularly with later round funding — and even at times for those with successful testing results.

 Along with market saturation and a run in IPOs, FDA approval for life sciences has seen a longer runway to commercialization than for other industries, often taking more than 10 years to complete all testing phases. Dips in funding can occur when investors experience “investing fatigue,” making it difficult to obtain additional funding from the current investor group.

While the new administration seems to be business-friendly, tariffs, supply chain issues, and federal funding freezes seem to be thwarting efforts to thrust the life science capital markets forward. While these external factors can’t be controlled, there are many steps your startup can take to boost success in raising the funding needed on your path to commercialization.

Securing Funding: A Delicate Balancing Act

If your startup requests too much money, you risk dilution and overvaluation. Ask for too little, and you risk hitting critical milestones without the funding to complete them. Securing funding early can increase the chances of obtaining the right funding and offset unforeseen market downturns. Seasoned life science entrepreneurs recommend always asking for 15%-20% more than you need, and remember, asking for too little can result in down rounds, not getting to an inflection point, and key people being laid off. Remember, as discussed above, certain steps require longer timelines and may cost more money than you anticipated at the start, so having that cushion could be paramount to ensuring financial stability in this tough capital environment.

However, you need to balance your request with the awareness of diluting the value of your investor base and yourself, which could prevent you from getting to the next critical research stage. That’s when critical timing, proper planning, and board management come into play.

Leverage Market Conditions: Timing Is Everything

Too many startups needlessly risk progress by asking for less money than they need and failing to time their requests with favorable market conditions. Investors are more willing to take risks during bull markets. In fact, the best time to raise money is when you don’t need it at all. Build in the funding you will need to reach future milestones. If you wait, market conditions may change and change rapidly, and you’ll be unable to advance your research.

Even the most promising companies are affected by negative market conditions. For example, a Phase 2 cancer drug developer faced investor hesitations when its leaders asked for additional funding during a market downswing brought on by adverse economic conditions. The company was experiencing positive results in its clinical trials with an 85% success rate, yet it could not obtain the funding to make a full move to Phase 3. This was due to issues at the investor level outside the company’s control, such as poor decisions in other investments within the fund and higher-than-expected redemption levels, which caused a lock-up with its current investors. With the downturn in the capital markets, the company was unable to raise the capital requirements it had budgeted; rather, it could only obtain enough capital to remain viable until an inflection point was within reach.

Pay close attention to the competitive landscape as well. If competitors are gaining traction, it could indicate a greater investor reception to other investments. However, if the market is saturated, you may want to revisit your strategic timing. Successful life science startups monitor broad industry trends, such as aligning requests with breakthroughs, emerging technologies and new regulations that have the potential to create market opportunities.

Build Investor Confidence: Justifying Larger Funding Requests

Be prepared to explain how the funds will be used by sharing a compelling narrative, which includes a management, finance, and regulatory story, in equal parts. It should answer the following questions:

• Can you share a clear development plan that outlines each clinical trial phase, regulatory strategy, and timeline for commercialization?
• Who is the defined market, and what is the unmet medical need?
• What is the scientific reasoning for the technology, and do you have supporting research?
• How do you plan to spend the investor’s money to meet regulatory requirements and get to the next milestone?
• How long will the money last?
• What is the expertise of your management team with clinical trials, drug development, and running a business? (Note: your CEO is typically not the founder.)
• Who will run point on regulatory compliance, and what are their credentials?
• What is your measurable progress, such as metrics and clinical trial data?

Alternatives To Traditional Funding

In the early stages of your work, it’s essential to be proactive in seeking non-traditional funding to help reach your milestones. Such alternatives include:

• Equity offerings: Angel investors invest their own money in exchange for equity or convertible debt.
• Grant funds: Foundations and government agencies can offer grants to support innovation.
• Bootstrapping: Using your personal savings or revenue allows you to retain equity, though it can be a riskier approach.
• Crowdfunding: Online platforms like Kickstarter provide an avenue to collect small amounts of funding from a large number of people.
• Friends and family members: Raising money from family and close acquaintances, often as a loan or equity, can be faster but can strain relationships if the business has challenges.
• Internships: In exchange for experience and mentorship, interns can aid with research, data analysis, and administrative tasks, freeing up resources for more critical areas.

Your startup must weigh the pros and cons of these alternatives to determine what works best for your business model.

Shortlist: Practical Tips For Life Sciences Startups

• Be aware of the regulatory pathway for your startup and the potential hurdles.
• Know your timeline.
• Raise as much funding as possible when the opportunity arises.
• Pay close attention to market conditions; take the money when it’s available.
• Put a qualified CEO in place with the requisite skillset to garner investor confidence.
• Build solid relationships with investors, partners and stakeholders early on.
• Network even when you’re not currently in capital raise, and continue to build your list — it will come in handy and help you achieve your end goals.

Put It All Together

Your life science startup can successfully receive funding when you can show promising preclinical data with potential investor ROI, a clear path to commercialization to address an unmet need in the market, a talented scientific and executive team, and a well-defined market for your product development plan. You increase your potential for success when you build in extra funding, consider the strategic timing of your funding efforts, and adequately prepare for varying market conditions.

About The Author:

Michael Brooder is the National Leader for the Technology & Life Sciences Industry Group and Office Managing Director for the Hartford, Conn. office at CBIZ. Brooder has more than 30 years of experience reviewing and analyzing financial data for privately held and publicly traded companies in the technology and life sciences industry. He works with clients throughout their life cycle from innovative emerging growth companies to public companies, with his vision focused on finding the next disruptive technology or medical advancement. He has extensive experience with reporting requirements for publicly traded companies, including registration statements and 10-Q and 10-K forms.