In a market where biotech venture funding has rebounded sharply but investors are more selective, Chris Ehrlich, CEO of CERo Therapeutics, argues that capital strategy matters as much as scientific strategy. He explains how disciplined spending, risk-reducing milestones, aligned investors, and open communication with boards help good science survive long enough to prove its value.
Key Takeaways
- The funding rebound is real but selective. The author reports that biotech venture investment reached about $38 billion in 2025, up 28% from the year before. Capital is flowing mainly to companies with strong scientific or clinical validation, experienced management, and a credible path to value.
- Starvation is a bigger threat than indigestion. Most early-stage companies fail by running out of capital rather than by overspending. Capital efficiency means making sure each dollar reduces risk or adds value to the asset, not simply spending less.
- Milestones should reduce risk, not just mark activity. Each financing round should fund clearly defined milestones that show whether the science is on track. Well-designed milestones give the company more leverage in its next raise and give investors clear go or no-go signals.
- Investor alignment must be built early. Funds sit at different stages of their own cycles, and management’s livelihood is concentrated in one company. Assembling a syndicate of long-term partners with compatible time horizons and follow-on expectations is a strategic task.
- Transparency turns the board into a partner. Sharing risks and trade-offs with the board and investors, not only good news, allows hard conversations to happen before they become crises. The author now sees the CEO-board relationship as a partnership rather than a hierarchy.
Why Capital Strategy Is Always as Important as Scientific Strategy
Anyone who has spent significant time in biotech understands that periods of abundant capital are never permanent. The industry moves through cycles of enthusiasm and retrenchment, but the current environment signals a meaningful rebound in investor appetite. After the funding constraints of 2022 to 2024, biotech venture investment rebounded strongly in late 2025, supported by renewed M&A activity, improving public markets, and sustained demand for innovative therapeutic assets, and 2026 is looking like a banner year. [1]
The market is doing more than just returning to the conditions of the last investment boom. Today’s investors are deploying capital with greater selectivity and a sharper focus on evidence. Funding is flowing most readily to companies that can demonstrate meaningful scientific or clinical validation, address substantial unmet medical needs, and define a credible path to value creation. This creates a favorable environment for high-quality companies, but one in which preparation, positioning, and execution remain essential.
In this environment, strong science is the foundation, but it is not the only part of the financing strategy. Companies are required to be equally disciplined about how they deploy capital, establish realistic and obtainable milestones, communicate with investors, and position themselves for subsequent financing rounds. The financing structure of biomedical innovation makes these priorities especially consequential: drug development still requires substantial external capital and involves significant scientific, regulatory, and commercial uncertainty.[2]
Recent industry data illustrate the strength of the recovery. Global biotech venture investment reached approximately $38 billion in 2025, a 28% increase over the prior year and close to the sector’s 2021 peak. Early indicators for 2026 point to continued momentum, including stronger private-market activity, substantial later-stage financings, and renewed investor interest in companies with clinical-stage assets and clearly validated development programs. [3]
This bullish market nevertheless remains uneven. Capital is concentrating in companies with compelling data, experienced management teams, differentiated platforms or products, and milestones capable of generating the next meaningful increase in enterprise value. For biotech leaders, the opportunity is significant: investors are again willing to fund ambitious programs, but companies must present a financing plan that translates scientific progress into measurable, investable milestones. That is why capital strategy remains as important as scientific strategy, even in a recently more favorable market.
Structural challenge: ‘starvation vs. indigestion‘ in biotech financing
The challenge remains particularly acute for early-stage companies. They must demonstrate both novelty and progress to attract capital while simultaneously preserving enough resources to reach the milestones that will make them more attractive to investors. That creates a fundamental tension at the center of biotech financing today.
One of the lessons I have carried with me throughout my career is that most early-stage companies fail from starvation rather than indigestion. In other words, running out of capital is often a greater threat than overspending.
Even in a market where capital is flowing more freely, it is important to distinguish between being capital efficient and being undercapitalized. Capital efficiency is not just about spending as little as possible. It is about ensuring that each dollar contributes to reducing risk or increasing the value of the underlying asset. [4]
The current environment has made that distinction particularly important. Although investors are once again willing to fund ambitious programs, they are also placing greater scrutiny on how capital will be deployed and what milestones it is expected to achieve. Companies therefore have less room for inefficient spending and greater pressure on management teams to demonstrate exactly what each financing is intended to accomplish.
Capital efficiency as a core operating discipline
Capital efficiency begins with treating every dollar as though it were one’s own. This is particularly important in biotech, where capital requirements are substantial and development timelines are increasingly lengthy and only get longer as later-stage trials require larger patient populations and longer timelines, to say nothing of the unavoidable delays, unexpected hurdles, and patient accrual taking longer than initially predicted. Every expenditure should be evaluated against the risk it removes and the value it has the potential to create.
This does not mean avoiding ambitious scientific programs. It means establishing clear priorities and continuously asking whether resources are being directed toward the activities that can most effectively advance the company.
For management teams, this requires discipline at both the operational and strategic levels. It means understanding the company’s cash position, identifying the milestones that matter most, and making difficult decisions when programs are no longer supported by the data.
Very few initial business plans survive unchanged, and that is not necessarily a sign of poor planning. It is a reflection of the uncertainty inherent in early-stage technology development. The companies that survive are often those that recognize new information quickly and have the discipline to adjust their strategy accordingly.
Importance of milestone-based development to reduce risk and drive valuation
Capital efficiency is closely connected to milestone-driven development. In biotech, each round of financing should ideally support a series of clearly defined milestones that reduce uncertainty and give investors a better understanding of how the underlying opportunity is evolving.
I have always thought about biotech projects through a Net Present Value framework. As a program progresses from the benchtop to the bedside, successful milestones can reduce the probability of failure and increase the project’s perceived value. This relationship is particularly important when future financing depends on continued investor confidence, since financing risk can influence investors’ willingness to support innovative ventures and affect how companies balance experimentation against the need to preserve access to future capital.[5]
This is where milestones become particularly important in a selective funding environment. Well-designed milestones give management teams and investors a shared framework for assessing progress. They can answer whether the underlying scientific thesis is becoming more credible, whether the clinical opportunity is expanding, and whether the company is approaching a meaningful value inflection point. They also provide easy-to-understand mile markers for even the most unsophisticated investor, pointing out easy-to-interpret go or no-go signals, and allowing both the Company and its sources of capital to know if the science is on track.
The most effective milestones are therefore more than activity-based. They should be designed around meaningful reductions in risk. Reaching those milestones can give a company greater leverage when it returns to the capital markets and can help investors evaluate the next stage of development with greater confidence.
Investor alignment challenges: different fund cycles, incentives, and constraints
Even with strong science and disciplined capital management, investor alignment can be difficult. One of the realities I have learned over time is that board members and investors do not necessarily have identical incentives.
Venture funds may be at different stages of their own investment cycles. Some investors may have substantial exposure across multiple companies and may be reluctant to increase their position in a particular business. Others may have different expectations around timing, liquidity, or portfolio construction. Management, by contrast, is typically much more concentrated on the company. Their careers, reputations, and often a significant portion of their personal financial interests are tied to the success of that single organization.
These differences are part of a broader financing environment in which entrepreneurs, venture investors, and other capital providers can face different risk tolerances, time horizons, and constraints. Understanding those differences early is essential to building financing relationships that can survive multiple rounds of development. ⁶
These differences do not make alignment impossible, but they do make it important to understand motivations early. Investors and management should have candid conversations about what each party needs from the relationship, align on where the milestones should lie, and what constraints may influence future decisions. This alignment becomes especially important during difficult periods. When a clinical program encounters unexpected data or a company needs to raise capital in a challenging market, previously unspoken differences in incentives can become much more visible.
Syndicate construction and the difficulty of assembling aligned capital groups
Building a strong syndicate is therefore about bringing together investors whose objectives and expectations are sufficiently aligned to support the company through multiple stages of development. A company needs partners, not just investors willing to provide capital.
That is difficult to accomplish even in a bullish funding environment, particularly as investors become more selective about where they concentrate their capital. Investors are understandably selective about where they deploy capital, while companies need partners who can remain engaged when conditions become more challenging. This sounds self-explanatory; every company is looking for long-term holders. It’s the topic of conversation that needs to change while the goal remains the same.
For companies, this makes syndicate construction a strategic exercise. Management should understand not only how much capital an investor can provide, but also what that investor’s time horizon looks like, how they think about follow-on investments, and what milestones they will expect before committing additional resources.
The goal should be to build a group of like-minded investors who understand the risks of the business and are prepared to support the company as those risks evolve. That alignment can become one of a company’s most important assets during periods of uncertainty.
Importance of transparency and communication with investors and boards
Perhaps the most important element of maintaining that alignment is transparency. In an uncertain environment, management teams cannot afford to communicate only when they have good news.
Investors and boards need to understand the risks facing a company, the assumptions underlying its plans, and the areas where management may need additional support. Frequent communication creates an environment where difficult conversations can happen before a situation becomes a crisis and investors pull the plug on the endeavor entirely.
My own approach to board relationships has evolved significantly over time. Earlier in my career, I viewed the relationship between a CEO and board member primarily through a hierarchy in which the CEO reported to the board. I now view that relationship much more as a partnership. Board members have an obligation to hold management accountable, but they also need to understand the challenges management is facing and contribute constructively to solving them.
That relationship matters most when management must make difficult decisions about how to allocate capital. A board kept informed about risks and trade-offs is much better positioned to help management evaluate those decisions and support the company’s development strategy. Transparency does not eliminate uncertainty, but it makes it possible to manage that uncertainty collectively.
Capital strategy is always as important as scientific strategy, and one needs to feed the other
The current biotech funding environment has reinforced a lesson that applies across virtually every stage of company development: capital strategy and scientific strategy cannot operate independently.
Strong science creates the foundation for a biotech company, but capital is what allows that science to progress from hypothesis to clinical proof and toward commercialization. At the same time, capital must be deployed in a way that creates meaningful scientific and commercial milestones. Each side therefore feeds the other.
The companies best positioned to capitalize on a favorable funding environment will not necessarily be those with the largest cash balances. They will be those that understand how to use capital efficiently, reduce risk through meaningful milestones, build aligned investor syndicates, and maintain transparent relationships with their boards and investors.
Biotech will continue to experience cycles of abundance and scarcity. Companies cannot control the broader financing environment, but they can control how prepared they are to operate within it. In a favorable but selective market, disciplined capital strategy is not separate from scientific strategy. It is one of the mechanisms that allows good science to survive long enough to prove its value.
References
[1] Lo, Andrew W., and Richard T. Thakor. Financing Biomedical Innovation. Annual Review of Financial Economics, vol. 14, 2022, pp. 231–270. Online. Last accessed on September 17, 2026
[2] Mulero A. Biotech’s ‘Nauseating Roller Coaster’ Repels Investors. BioSpace, April 23, 2025. Online. Last accessed on September 17, 2026
[3] Walrath, Rowan. Navigating the Financing Doldrums in 2024. Chemical & Engineering News, December 8, 2024. Online. Last accessed on September 17, 2026
[4] Booth, Bruce. When Less Is More. Booth BL. When less is more. Nat Biotechnol. 2007 Aug;25(8):853-7. doi: 10.1038/nbt0807-853. PMID: 17687357. Online
[5] Nanda, Ramana, and Matthew Rhodes-Kropf. “Financing Risk and Innovation.” Management Science, vol. 63, no. 4, 2017, pp. 901–918. Online. Last accessed on September 17, 2026
[6] EY 2025 Biotech Beyond Borders Report: Biopharma: Focus on Fundamentals to Bounce Back. EY, June 18, 2025. Online. Last accessed on September 17, 2026
Featured image: © 2026 CHA ONC JCO. Used with permission
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