HOW BIOTECH STARTUPS CAN BUILD FINANCIAL RESILIENCE IN A PROLONGED DOWNTURN
Written By
James Ehret
Managing Director, Life Sciences, Venture Banking Group
The past few years have tested the endurance of biotech startups. From 2022 through 2024, biotech companies faced mounting obstacles, including frozen IPO markets, sharply higher interest rates and a significant pullback in venture capital funding.
In early 2025, there was hope that declining interest rates combined with a more business-friendly regulatory climate would bring some reprieve, breathing new life into fundraising, M&A activity and IPOs. But early optimism has given way to renewed caution. Capital remains scarce, deals are taking longer to close and company valuations have dropped.
Companies are now bracing for a continued biotech downturn as founders and executives shift their focus from growth to survival. The path forward will require new strategies: sharper financial discipline, faster decision-making and a willingness to rethink operations. Let’s take a closer look at how biotech companies can survive a market downturn and position themselves to thrive when the economy rebounds.
Rethink Spending: Prioritize, Partner and Right-Size
In a difficult fundraising environment, biotech startup resilience often comes down to how well a company manages spending. The first step is pipeline prioritization — focusing limited capital on programs with clear near-term value, such as regulatory milestones or potential partnership triggers. Pausing or shelving projects that don’t move the needle in the next 12 to 18 months could help increase a biotech’s success rate.
However, it’s critical not to abandon innovation altogether. Instead, commit to making tough calls about what can realistically deliver results under the current constraints. Carefully evaluating market potential, scientific risk and development timelines can put startups in a stronger position to defend their choices when speaking with investors or potential partners.
Strategic partnerships may also help extend resources. Licensing or codevelopment deals can reduce risk, bringing in funding that does not dilute ownership. These collaborations can also offer access to shared infrastructure, regulatory expertise and market reach that smaller companies may struggle to build on their own.
In addition, lean team structures are becoming the norm. Rather than hiring full-time executives, many startups are working with fractional leaders and experienced advisers. This approach keeps overhead low while still bringing in the expertise needed to move programs forward.
Finally, some companies are also turning to shared services models to reduce complexity while maintaining access to specialized skills. This may include outsourcing non-core functions like HR, legal or regulatory affairs.
Operate Smarter: Efficiency Through AI and Footprint Reduction
Artificial intelligence is no longer a futuristic concept. Instead, it’s a practical tool biotechs can use to streamline preclinical research, optimize trial design and accelerate data analysis. It’s also an effective way to automate operational workflows, improve decision-making and free up human resources for higher-value tasks.
When applied thoughtfully, AI tools can shorten development cycles, reduce trial failure risk and help identify promising compounds earlier in the process. These efficiencies can save money while also building confidence among stakeholders who are increasingly focused on tangible progress.
Reducing fixed costs is one of the top financial strategies for early-stage biotech startups facing a tough economy. This often involves reexamining real estate costs, which tend to be a significant line item for many biotech companies. With hybrid work models becoming more accepted, startups may consider subleasing underused lab space, sharing facilities or negotiating more flexible leasing terms.
Get Creative With Capital: Debt, Royalties and Storytelling
As equity financing becomes harder to secure, many companies are exploring alternative ways to extend their runway. Venture debt and royalty-based financing are two options that allow startups to avoid giving up ownership rights. However, it is vital to understand the terms of any such agreement and work with partners who have a clear understanding of the long-term vision of your business. Remember that while debt is non-dilutive, it does need to be repaid, and royalty financing can impact a firm’s long-term cash flow.
This is also the time to sharpen your story. Investors want to see that you’re thinking clearly and acting responsibly. A strong fundraising narrative should focus on how you’re managing risk, using capital efficiently and standing out in a crowded space. Being honest about challenges — and clear about your plan to move forward — also goes a long way in building trust.
Keep in mind that the audience has changed. Many venture funds are reserving capital for existing portfolio companies, and newer investors may be less familiar with your science or stage. Customizing your message to the investor you’re addressing can help you make the most of limited opportunities.
Build Your Biotech Startup to Outlast a Downturn
While the current downturn has been longer and harsher than many anticipated, markets are cyclical, and history shows that recovery will come. The companies that endure will be the ones that stay lean, think creatively and focus on long-term value.
Biotech has weathered setbacks before — from funding freezes to regulatory shifts — and each cycle has cleared the way for the next generation of breakthroughs. Staying disciplined today may require passing on opportunities or delaying growth plans. However, it’s these types of moves that can create room to seize momentum when conditions improve.
From early-stage planning to late-stage execution, our team understands the challenges biotech companies face. Explore our Life Sciences banking services to learn how we can support your business through every market cycle.
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