Financing trends in life sciences: strategic capital solutions for Oxford and Cambridge innovation hubs

Since 2021, the financing landscape has shifted dramatically. Traditional venture capital has become more selective, valuations compressed and the path to series B fundraising lengthened. In response, alternative financing models have emerged which, not only provide capital, but carry other benefits such as to preserve equity, accelerate development, and/or align stakeholder interests.

These alternative funding options include:

• Clinical trial and Contract Research Organisation (CRO) equity partnerships – biotech companies offering equity to CROs to share risk and reward

• Series B exit strategy - strategic partnerships or acquisitions to accelerate growth

• Equipment as a service – sourcing equipment with lease payments aligned to revenue

• Synthetic lead investor arrangements – an existing investor unlocks future investment

• Royalty monetisation – converting future revenues into current capital

• Venture debt and grants – to avoid equity dilution while accessing capital

Clinical trials and CRO equity partnerships

This model redefines the traditional service provider relationship by offering equity stakes to CROs in exchange for trial research management, rather than up-front fees. This alignment of incentives ensures CROs are invested in ensuring the trials are executed efficiently and effectively while allowing cash-constrained biotechs to preserve capital.

While equity dilution is a consideration, the risk-sharing and expertise offered can justify the partnership. Selecting a CRO with aligned capabilities and track-records is crucial. Both parties should also ensure that the independence and integrity of research provided remains uncompromised – including from a reputational perspective.

The Series B exit strategy: early partnership for accelerated growth

The Series B exit trend presents an alternative to the traditional path of multiple funding rounds followed by eventual acquisition or IPO. Companies are increasingly open to strategic partnerships or being acquired at the Series B stage, often structured with milestone-based payments.

This approach provides growing biotech companies with immediate access to resources and expertise of more established pharmaceutical partners. In return, the established partners gain access to promising assets at an earlier valuation. Success depends on selecting partners whose strategic priorities, therapeutic expertise, and cultural values align. The milestone structure should reflect realistic development timelines while providing meaningful upside for founding teams and early investors.

Equipment as a service: unlocking hardware-dependent innovation

This model offers a flexible financing structure where the finance provider acquires hardware assets, and the biotech company retains control over customer relationships and income receipts. Monthly lease payments align with revenue generation, creating natural cash flow matching.

This allows companies to scale operations without equity dilution and adapt equipment needs as the business evolves. This is particularly valuable in the current market environment, where hardware-dependent companies might otherwise struggle to secure traditional equity financing for capital equipment. It also serves as bridge financing, enabling revenue generation before equity rounds at potentially larger valuations.

Synthetic lead investor arrangements: leveraging networks for capital formation

This model addresses the complexity of coordinating multiple investors by having a lead investor organise the investment round. An existing investor - often one with strong industry relationships and credibility - takes on the lead role in organising an investment round, even when they may not have immediate capital availability. For biotech companies, it can mean faster access to capital and more cohesive investor groups, as the synthetic lead investor can effectively pre-qualify and coordinate multiple participants.

Success depends heavily on the reputation and network strength of the lead investor. Companies should evaluate potential synthetic leads based on their track record, industry relationships, and ability to attract high-quality co-investors who can provide strategic value beyond capital.

Royalty monetisation: converting future revenues into present capital

Royalty monetisation allows companies to convert future royalty streams into immediate capital, providing liquidity without equity dilution, a particularly attractive proposition in a market where equity valuations remain compressed.

This is particularly relevant for companies with existing revenue streams from licensing agreements, partnerships, or early-stage product sales. Future cash flows are monetised for access immediately, providing capital for reinvestment in R&D, business development, or operational scaling.

Structuring these transactions requires careful consideration of factors like the predictability of royalty streams and the discount rate applied and impact on future financial flexibility. While it preserves equity, it may signal capital constraints to future investors.

Venture debt and grants: preserving equity while accessing capital

Venture debt continues to complement equity financing, extending the runway between equity rounds and providing bridge financing during downturns or while awaiting regulatory approval. Venture debt structures have become increasingly founder-friendly with flexible repayment terms and covenant structures that accommodate the unique cash flow profiles of biotech companies.

Non-dilutive funding through grants remains an underutilised resource for many companies. Government bodies, charitable foundations, and industry organisations offer substantial funding opportunities for companies whose research aligns with public health priorities or strategic national interests. While grant funding requires significant application effort and compliance obligations, it provides capital without any equity dilution or repayment requirements.

Implications

For entrepreneurs, financing strategy should take account of each model's distinct implications for control, dilution, operational flexibility, and strategic positioning.

For investors, there are both opportunities and challenges. Traditional investment models may need to evolve to remain competitive, while new models require different due diligence approaches and risk assessment frameworks.

The path from discovery to market success has never been straightforward, but the expanding toolkit of financing options provides more routes to navigate the journey. It should facilitate navigation of market volatility to capitalise on the extraordinary scientific opportunities that continue to emerge from these world-class research hubs.

Further insights

At a recent Life Science Group meeting, the Mishcon de Reya team, joined by external guests, had the following insights:

• The biotechnology sector is currently experiencing a severe capital crunch, with companies struggling to secure funding at seed and early stages as venture capital firms prioritise supporting their existing portfolios over new investments. This funding drought is compounded by VCs themselves facing difficulties in fundraising, as investors increasingly favour stock markets over riskier alternative asset classes. The ripple effects are expected to persist for at least a year before funding levels return to historical norms, creating significant challenges for service providers across the ecosystem.

• The pharmaceutical industry has responded with an "ultra-conservative" approach, implementing aggressive cost-cutting measures, reducing innovation spending, and prioritising cash preservation early in the financial year.

• This defensive posture has created a rather bleak outlook for platform companies and providers of tools/services serving big pharma, whilst also limiting growth opportunities across the sector. However, the downturn presents acquisition opportunities for well-capitalised funds targeting distressed assets, and companies demonstrating strong execution continue to generate value. Certain subsectors show greater resilience, particularly cell and gene therapy, whilst diagnostics faces particular challenges following the post-COVID market correction.

• The regulatory landscape adds further complexity with changes to FDA review processes, and the sector's talent pipeline is under pressure with declining university admissions in both the UK and US.

• Despite these headwinds, the UK may well be better positioned than the US, benefitting from the NHS infrastructure and a relatively stable ecosystem, though recent Government funding announcements, whilst welcome, represent only modest support relative to the scale of the challenges.

This article, authored by Charlie Fletcher, first appeared on the Mishcon de Reya website on August 5, 2025.