Second – financing for biotech startups continues to fall below what is necessary – it’s only going to firms that have proven reliability which proves the necessity of the AFF.

Biotechnology entrepreneurs early this year hoped for venture investment in their industry to recover. They’re still waiting.

Biotech venture financing remains tight as investors channel money into fewer companies considered the strongest players. While biotech venture investment globally rose from $6.3 billion in the fourth quarter of 2023 to $7.4 billion in the first three months of this year, according to market tracker PitchBook Data, the number of completed biotech venture financing deals is on the decline.

Biotechs closed 188 venture financing rounds in the first quarter, putting 2024 on pace to fall below last year’s total of 967. During the biotech boom of 2021, fueled in part by the Covid-19 pandemic, startups closed 1,631 venture deals, according to PitchBook.

A run of biotech mergers and acquisitions and initial public offerings, and the potential for interest rate cuts, initially created optimism that venture investment would rebound this year after falling the past two years.

But rather than spreading their bets widely, venture firms are investing heavily in startups with proven teams targeting large markets such as obesity, cancer and inflammation.

For example, Avenzo Therapeutics disclosed a $150 million venture financing in March. The cancer drug startup is led by former executives of Turning Point Therapeutics, a biotech company acquired in 2022 for $4.1 billion by drugmaker Bristol-Myers Squibb.

“A lot of investors are looking for opportunities that are de-risked,” said Dr. Jakob Dupont, an executive partner, private equity, with life sciences investor Sofinnova Investments, an Avenzo investor.

Deborah Hemingway, managing partner of medtech venture investor Ecphora Capital, said she still sees gaps between the valuations entrepreneurs seek and the price investors are willing to pay. Eventually, deals get done because startups run out of money and accept valuations equal to or below their last financing.

“We’re still seeing a prevalence of down rounds and flat rounds,” Hemingway said. “That tells us that maybe the market hasn’t fully finished resetting.”

Investors are searching for good science and teams they believe can execute, said Albert Seymour, chief executive of startup Seamless Therapeutics, which has raised $25 million in seed financing to develop gene-editing treatments.

“If you have that combination, it’s still challenging, but that funding window is starting to open,” Seymour said.

Karen Harris, chief financial officer and head of mission-related investments for the Alzheimer’s Drug Discovery Foundation, said she sees many biotechs struggling to raise capital.

Startups often seek to bring the foundation in as an investor to serve as a stamp of approval for other potential backers, Harris said. The organization invests in startups through a venture philanthropy model.

“The really good companies will always be able to get money,” Harris added.