WOLF & CO Insights How Healthcare Startups Are Raising Capital Amidst Uncertainty

How Healthcare Startups Are Raising Capital Amidst Uncertainty

Written by: Hunter Boyce, Derek J. Thomas

The economic and business climate over the past few years can be defined in a single word: unpredictable. As companies emerge from the COVID-19 pandemic, they’re met with a variety of hurdles including supply chain issues, volatile markets, operational challenges, and overall uncertainty. As early stage companies in the healthcare industry, start-ups are constantly devoting their time to their business activities, products or services that will create value and promote growth. To accomplish these goals, companies are constantly faced with a lasting question: how will we raise the necessary funds to fuel operations and growth? As high inflation has drastically increased the cost of doing business, this question has only become more difficult to answer. The challenges early-stage companies face reside in balancing financing options that are compatible with their current needs versus the financing options that are available to them amidst the hastily changing capital markets, which we have seen over the past three fiscal years.

Where We’ve Been: Growth from 2020-2021

The biotech industry has seen continued growth from a financing lens due to the attraction it draws for long-term investors. Notable capital and financing activity occurred during 2020 and consisted of seed, venture capital, and private-equity infusions. Momentum also began for IPO filings, which were seen throughout 2020 and further evidenced the various options that are available to companies within the biotech industry. Globally, in 2021 the biopharma industry saw a record number of IPOs during the year, surpassing a previous record of 84 in 2020 to 92 in 2021. These IPOs yielded booming market caps at IPO dates of over $70 billion and $80 billion, respectively. In the United States, the biotech industry saw an uptick of approximately $16 billion in early-stage funding from 2020 to 2021, from roughly $31 billion to a $47 billion infusion, as the industry pursued anticipated growth.

In the United States, the biotech industry saw an uptick of approximately $16 billion in early-stage funding from 2020 to 2021, from roughly $31 billion to a $47 billion infusion, as the industry pursued anticipated growth.

Biotech Trends Today

Through the fiscal year 2022 thus far, the IPO trend has come to a near halt, albeit the IPO financings that have occurred are relatively consistent with what was seen in years prior to 2020. However, both interest and activity have greatly slowed since 2021 due to the current volatility of the public market. This volatility is due to declining economic conditions that are the result of the war in Ukraine, market uncertainty, and the impact that the rising interest rate environment will have on the overall economy.

Therefore, the current and projected trends are suggesting we will not witness the same number of IPOs we saw in 2020 and 2021. The financing options that are more popularly being seen to support the operational needs of early-stage companies in the biotech industry during 2022 are traditional debt and equity financings through lenders and private investors, bridge notes, convertible promissory notes, and series fundings. These options are being elected based on the needs of each company, which are analyzed against the current health of their balance sheet and income statement. By forecasting conservative cash runways and interpreting how the interest rate environment of each financing option will impact that cash runway, companies are able to determine which financing options are best for them.

Alternatively, some early-stage companies have elected to take a more cautionary approach. The impact of inflation on their operational costs, research and development expenses, real estate expenses, and others, have burned through budgets and bottom lines. With the future outlook of the economy remaining uncertain, including rising interest rates increasing the cost of debt and equity financings further diluting their cap tables, many companies are electing a cost savings approach. Putting a freeze on hiring or even reducing staffing levels has started to become more prevalent in addition to overall budget tightening.


In essence, early-stage biotech companies have leaned more towards robust private financing in the forms of either debt or equity that can provide amounts to meet their cash needs and are not subject to the current market. In contrast, the industry is expected to still see IPOs occur as a means of raising capital for biotech companies. However, it is not anticipated that these IPO filings will occur at an individual or aggregate rate similar to that of 2020 and 2021, again due to uncertain economic conditions and market volatility. As always, time will tell which business strategy was the most beneficial to maintain liquidity and promote growth. Until then, management will have some difficult decisions to make about what’s best for their company in an unstable and unpredictable world.

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