Life science and healthcare companies have many avenues available to raise capital at various stages, each with its own benefits and considerations. Savvy founders and startup leaders should understand which asset class can offer the best opportunity to advance and support their company’s success. Across all sectors - therapeutics, diagnostics, tools, medical devices and digital health - the approach you take today to create your syndicate of investors will impact all future funding rounds.

Here's what you should know about five types of private market investors: incubators, venture capital, corporates, family offices and SPACs.

Incubators

Incubators (sometimes called accelerators) can be great resources at the earliest stages of a company’s development. There are hundreds of life science and healthcare incubators in the U.S., and they each offer a distinct approach to capital formation and resource management.

Most include research and lab space for relatively low or no cost—and some provide seed funding to operate. While the level of funding varies and may be nominal, it is often enough for those seeking proof of concept or early-stage, pre-clinical efforts.

Things to consider:

• Some incubators have longer-term occupancy options, while others can be very short.
• Some specialize in certain sub-vertical efforts, such as specific therapeutic areas, while others are all-encompassing.
• Incubators may have added benefits as well, such as access to development and corporate equity partners, which could ultimately provide longer-term funding.

Venture capital

Life sciences companies often need significant amounts of capital to reach scientific and operational milestones, particularly in the clinical growth stages. Venture capital (VC) investments can help and continue to trend upward for companies at all stages of development.

Venture firms bring a wealth of resources to the table outside of just capital needs. Life science and healthcare VCs have likely experienced the challenges and successes of multiple operations in the pre-clinical, clinical and commercial stages. For this reason, they can help founders and managers navigate pitfalls and capitalize on scientific and market opportunities.

Things to consider:

• Many VCs have cultivated valuable networks of mentors and partners that can be utilized and maximized by early-stage business leaders.
• Some VCs may prefer an active role in your company, like serving on your company’s board of directors.
• In recent years, venture rounds are increasing in size across many areas and companies are accessing the public market at earlier and earlier stages.

Corporate Venture Capital (CVC), partnerships and licensing

The world of life science and healthcare has become much more active with large corporations setting up dedicated initiatives to directly invest in smaller private companies. The number, size and pace of investment has accelerated in recent years and looks to only increase.

Corporate partnerships and licensing of new therapies can also be a strategic step for life sciences companies to seek both non-dilutive financing and validation. Increasingly, these R&D partnerships have been signed in earlier phases, even before a treatment is in preclinical trials.

Things to consider:

• CVCs may invest directly in companies as a means of innovation and path to strategic partnerships, which can often be more cost-effective than internal research and development, or for financial returns.
• Eventual merger and acquisition from the corporate partner can be a possibility and potentially a focus when approaching a corporate investor.
• Would-be investors don’t always come from within the life sciences industry—corporates in the technology sector increasingly invest in life science startups, particularly when it comes to big data, AI and machine learning opportunities. 

Family offices

It’s estimated that family offices worldwide have trillions of dollars in assets under management. While the percentage of their capital devoted to alternative assets—such as directly investing in life sciences opportunities—is small, it still presents a sizable capital base that could help a life sciences firm.

Things to consider:

• Family offices are generally not constrained by many of the structural and economic concerns inherent in institutional venture capital or private equity funds, such as the need for board representation or control.
• There are fewer investment timing needs, meaning the family offices are not pressured by limited partner expectations of return and time to liquidity.
• Family offices may prefer to invest in what they know well—and the importance of relationships can’t be overstated. Introductory meetings with a prospective company are highly important.
• Amounts offered can vary widely, but generally may be smaller than institutional venture capital investments, making them more applicable in early capital rounds.

Special Purpose Acquisitions Companies (SPACs)

Going public via SPAC can be a way for private life sciences companies to raise capital.

A SPAC is a publicly listed shell company that raises cash via an IPO and has a set amount of time (usually 24 months) to invest it. This happens by merging with a private company and taking it public through acquisition. A SPAC is “sponsored” by a group of high-profile individuals, sponsors, corporates or family offices that typically have a strong operating or financial track record.

Things to consider:

• Not all SPACs are created equal—companies need to conduct thorough due diligence to assess a SPAC’s terms and prospects.
• SPACs resurged in popularity during the COVID-19 pandemic as investors began looking for alternative vehicles to bring companies public.

More insights for selecting the right funding source

When looking for the best funding source to support your organization, consider your firm’s needs, where it is in its growth cycle, and where you expect it to go in the future.

Our team of life science and healthcare bankers and specialists focus on solutions for pioneering companies at all stages - from early stage through commercialization.

We understand the complex funding and regulatory challenges you face at every step of development, and we’re ready to help you stay positioned for innovation and growth. Learn more about how our life sciences team can help companies like yours.