Early-stage biotech investment: where are we? 


Yogan A Patel, Partner at MHA and Head of MHA’s Pharma, Life Science and Med-Tech sector group examines the investment landscape for early-stage biotech companies in the UK and further afield.  

It is well recognised by both investors and government that the UK has huge strengths in biotechnology. Investment opportunities offer both lucrative returns and huge social impact, yet many early-stage drug discovery firms find it increasingly difficult to convince investors to back them.  

It is somewhat easy to generalise the investment picture as ‘bleak’ or ‘challenging’ – but I find these descriptions are unhelpful to the many CEOs, CFOs and founders that I work with, who want a clear assessment of the investment landscape, guidance on the options open to them and tips on how they can succeed.  

Over the years MHA has been advising biotech companies, we have gathered a huge number of insights about how to successfully scale. Investment is clearly a key part of this, so I hope this article is useful to those on a pathway to scaling up.  

Where is the market at? 

The last 18 months have been challenging for most biotech leaders raising investment, regardless of whether this has been from angels, VCs or family offices.  

The high valuations of 2021, combined with volatile economic conditions in many advanced economies that have followed the tail of the pandemic, has meant that the market has been difficult for raising investment. The money is there but investors are being more selective about who they back.   

Fortunately, just like the weather, it looks as if things are looking up for the sector as we go into the second half of 2024. I won’t re-run every statistic here – the trends, deal flows and investments of the last few years have already been extensively covered by others – but there is one stat worth highlighting.  

April’s early-stage European funding data, released by Sifted1, is very encouraging. Pre-seed to Series A companies brought in €1.4bn last month, with healthcare accounting for €315m of that total. Drug discovery and biotech took the top two spots for sector activity – hugely promising and hopefully the sign of a much more positive backdrop that will frame many of the discussions companies will be having with investors. It’s also worth mentioning that the UK took the top spot followed by France and Germany.  This is in line with the government’s ambition for the UK to be the leading destination for life sciences companies in Europe. 

Whilst the most recent Europe-wide data on fundraising provides a helpful context for those raising investment, it doesn’t particularly help individual companies in the short term.  

So how can early-stage drug discovery companies improve their chances of success? 

Investment options 

The first piece of advice I give to companies I speak to is to exhaust all avenues of grant funding. Accessing grants, whether through Innovate UK, NIHR, Horizon or other bodies, helps a company get closer to commercialisation and further de-risk its IP. This increases the company’s attractiveness to investors, but also means the company needs to raise less money – or that the money will go further.  

It is not easy to secure a grant and a lot of resource needs to be spent writing proposals, applications etc. My advice is to pursue private and grant funding in parallel and don’t dismiss the doors grants can open! Convertible loan notes (also known as convertible bonds or convertible debt, are a type of debt financing agreement often used by early-stage start-ups to raise funds. They are like a cash loan that can be converted into equity at a future date, which have been available through the government’s Future Fund, and may also be part of a good equity/debt mix. Considering these options as part of your broader approach demonstrates good risk management on your part and will give investors comfort that you have looked at the bigger picture.  

Aside from the financial impact, successful grant funding applications demonstrate that an independent third party has assessed the robustness of the IP, idea etc, and completed a level of scientific due diligence – very reassuring signals, especially sought after by non-specialist investors for whom biotech is just one of their many sectors.  

Secondly, tapping into small funds and angel networks can be a useful source of seed capital, especially for spinouts who benefit from university networks. Not only is this initial investment easier to come by, but it is usually accompanied by good connectivity into follow-on funding for companies who meet key milestones. Fully understanding and taking advantage of seed enterprise investment scheme (SEIS/EIS) status is important at this stage and can be the difference between success and failure. Seek advice if you are not familiar with this. 

Thirdly, family offices are worth considering as part of your funding mix. When companies think about raising investment, the UK, EU and US are very popular markets for obvious reasons, but spreading the net wider can be a smart strategy. I have recently spoken with family offices in the Gulf and Switzerland, who were seeking introductions to biotech companies seeking investment. The UK stood out to both international investors as an excellent source of highly innovative, high-potential companies.  

Getting investment ready 

Once you have identified the sources of funding most suitable for your business, and identified where you will target your efforts, it’s important to make sure you have the key ‘investable’ pieces in place.  

This is most important when it comes to the team. Ensuring the company has the right talent in place is vital as it can be easy for a founding CEO to become overstretched doing roles that they are not best suited for. Getting a dedicated CEO, CSO, CFO and others in place is important as part of a holistic commercialisation plan, which should outline financial projections for the next three to five years and a pathway to licensing or acquisition.  

The response to this type of advice is usually ‘we don’t have the money to pay those salaries!’ which is when I recommend you start considering share options and speak to your business advisory partner about how best to structure this. Having the right set up can enable you to attract the best people with very limited resources.  

Getting your business planning right is also critical. Be accurate about where your IP fits into the market and how you’re going to commercialise the technology. This is very different to it being technically excellent; investors are looking for an ability to turn innovation into real world value. Our corporate finance team have seen some biotech companies with outstanding potential that is poorly packaged from an investment point of view – getting this right is worth its weight in gold (literally!). 

Concluding thoughts 

In general terms, 2024 is already turning out to be stronger than 2023 but the consensus amongst investors I speak to is that 2025 will be much better.  

There is global competition to attract life science businesses – Hong Kong, Texas and Brussels are all running marketing campaigns to that end. But the UK remains a global hub of excellence, where investors know they can find great innovation and great value.  

Science, team and market potential are some of the most important areas that need to be right for investors. Location and access to lab space is important too, so do consider where you base the business as this is noticed by international investors who are familiar with the regional life science hubs.  

The near-term future looks positive for biotech companies. Exhausting grants, exploring the right funding avenues, recruiting talent and packaging your business plan properly will put you in an excellent position to ride the wave of positive sentiment that is returning to the market and succeed. 

About the author  

Yogan A Patel is a Partner at MHA and Head of MHA’s Pharma, Life Science and Med-Tech sector group. 


1: https://sifted.eu/articles/funding-april-startup-health-tech  

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