The Hidden Force Behind Biotech Innovation: Why Investor Type Matters

Does who you raise capital from actually shape your innovation output?

The evidence says yes. And with Objective, Investment Banking & Valuation’s experience in biotech, we have seen from our clients the impact can be profound.

 

CVCs Don’t Just Pick Winners; They Help Create Them 

In a landmark study of over 500 biotech startups, Elisa Alvarez-Garrido and Gary Dushnitsky uncovered findings that challenge assumptions about venture funding. Startups backed by Corporate Venture Capitalists (CVCs) operating within their own industry, not generalist VCs, were significantly more innovative and productive, producing:  

• 3x more patents 
• 2x more scientific publications 

 

Importantly, this wasn’t the result of cherry-picking the most promising companies. CVCs actively increased innovation after investing, acting as true growth partners. 

Why? They brought what most generalist VCs could not: 

• Access to proprietary corporate laboratories and R&D infrastructure 

• Regulatory expertise, particularly in navigating FDA approval 

• Embedded technical resources most startups cannot afford on their own 

• Guidance from experienced corporate advisors with sector-specific insight 

 

These advantages are most critical in two phases of biotech development: 

1. Discovery: when the science is still forming and strategic guidance can shape the research direction. 
2. Regulatory: when that science must survive FDA or other regulatory scrutiny before reaching the market. 

 

Does this mean CVCs should always be your go-to funding partner? Maybe not in every case, but the data shows they have the ability to shift a startup’s innovation path in meaningful ways. 

 

Specialist VCs Also Play a Critical Role In the Right Environments 

In follow-up research with Cansu Guler, and later in her own work, Alvarez-Garrido expanded the analysis beyond corporates. She found that specialist VCs, those focused on sectors like biotech, also accelerate innovation, especially in reducing time to first patent. 

However, the magnitude of that impact depends on the national research environment: 

• Strong ecosystems (e.g., U.S. especially here in San Diego): Startups already have access to leading labs, CROs, universities, and consultants. Specialist investors still provide value, but the marginal innovation boost is smaller. 

• Moderate ecosystems (e.g., South Korea): Specialist VCs become force multipliers, connecting science to commercialization and helping founders navigate complex regulatory requirements. 

• Weaker ecosystems (e.g., Costa Rica): Even highly specialized investors struggle without sufficient infrastructure, unless they can directly supply the missing capabilities themselves. 

 

In short, specialist investors are most effective when they complement a growing ecosystem rather than attempting to replace what doesn’t exist. 

 

Investing in “Fixer-Uppers” 

Interestingly, other studies suggest that targeting undervalued startups with hidden potential can be just as impactful as backing obvious winners, if the investor has the expertise to identify and unlock that potential. 

Across these findings, two themes consistently emerge and is consistent with our vantage point advising biotech founders and investors: 

• Value Translation: The ability to turn scientific breakthroughs into commercially viable businesses. 

• Regulatory Navigation: Especially critical in high-stakes, highly regulated fields like biotech. 

 

While these aren’t the most glamorous parts of investing, they are often the true drivers of measurable outcomes.  

 

Why This Matters for Founders and Investors 

In many countries, particularly outside the U.S., startups face significant challenges in translating technical inventions into commercial products. Even fewer are equipped to manage the regulatory path to market. 

Investors who build in-house capabilities or bring the right partners to the table provide value that cannot be purchased off-the-shelf and this can be the deciding factor in a company’s success. 

• Corporate VCs excel here because they’ve navigated these challenges before and understand the corporate mindset. 

• Specialist VCs increasingly bring former operators into their teams, delivering best practices, founder empathy, and meaningful strategic partnerships. 

 

The market has also evolved. In the past, corporates were the “helicopter parents” of the industry deeply involved in every step (often to a company’s benefit). Today, it’s common to see VC firms with CFOs, in-house PhDs, and specialized attorneys engaging directly with portfolio companies, adding value far beyond capital.

  

Decision-Making in Practice: Beyond the Data   

Like many disciplines, biotech investment decisions are shaped not only by evidence, but by human behavior. Founders often raise from the first investor to show serious interest. VCs lean on pattern recognition, instinct, and prior success. And it’s not uncommon for a compelling presenter to secure funding over someone with objectively stronger science. 

Meanwhile, in academic journals, researchers analyze hundreds of startups over years, uncovering insights that too often go unnoticed in boardrooms. 

The implication is clear: the data matters, and so does how it’s applied. 

 

Key Takeaways   

• Founders: Seek investors who deeply understand your science and your sector. Their infrastructure and expertise can be just as important as their capital. 

• Investors: Your impact depends on where and how you specialize. Align your investment thesis with the ecosystem and your operational strengths. 

• Developing Markets: There’s significant opportunity in bridging gaps between science and commercialization. 

 

Real value creation in biotech happens when insight and execution meet evidence. And with hundreds of startups and years of data supporting these conclusions, the case for aligning investor type with innovation goals has never been stronger.

 

Partner with Objective to Maximize Biotech Value Creation

Objective advises both biotech founders and investors on strategies that maximize valuation, deal readiness, and long-term growth potential. Our expertise spans: 

• Sell-Side M&A Advisory for biotech and life sciences companies 

• Valuation Services aligned with tax compliance, financial reporting, and transaction needs 

• Strategic Advisory to position companies for minority sales, and successful exits 

 

If you’re a biotech founder seeking the right capital partner, or a PE firm building a biotech portfolio, our team can help you assess opportunities, navigate negotiations, and drive measurable outcomes. Contact us today to discuss your biotech growth strategy.