While the recent financing slump in life sciences and biotech has been widely acknowledged and reported on, we at AVANT BIO have noticed an interesting, more granular trend within the broader fundraising environment for life science technology companies – a funding gap for early growth. This funding gap represents more than just a slowdown in capital flow, it poses a significant risk to promising companies that have achieved initial market traction yet struggle to secure the capital necessary for continued growth. Without access to adequate funding, these early growth companies face mounting challenges, from stalled development and limited operational capacity to increased pressure to cut costs that can hinder innovation and customer growth. The lack of funding at this stage often leaves companies with limited options, such as stretching available funds unsustainably, slowing down critical hiring, or taking on high-cost debt that could impact their long-term viability. This lack of resources can jeopardize their commercial momentum, making it challenging to reach the scale that larger investors look for, and ultimately leaving valuable innovations stranded before they can achieve market impact.

What is early growth?

We define early growth as companies that are doing low single digits up to ~$10 million in annual revenue. Companies in this stage are often beyond the scope of angel investors or early-stage funds but not yet established enough to attract growth equity or later-stage venture capital. Less quantitatively, we consider early growth companies as those that have a commercial product, are in the early innings of commercial traction but have enough commercial validation to give us conviction they can capture the target market. 

At this stage, companies are capital-intensive, as they not only need to maintain their operational baseline but also invest in scaling key areas of their business. Hiring is one of the most pressing cost drivers, as early growth companies often need to expand their teams with specialized talent in areas such as sales, marketing, and technical support to drive and support growth. Product development is another significant expense, as companies may need to refine their existing offerings, expand product features, or even explore adjacent innovations to stay competitive. Additionally, marketing costs ramp up substantially during this phase, as companies must build brand awareness, acquire new customers, and secure their foothold in the market—all essential but costly steps to grow their presence. Operational and infrastructure costs also increase as companies scale, requiring investment in quality control, regulatory compliance, and streamlined manufacturing processes and supply chain to support a growing customer base.  Companies in this phase have done a tremendous job getting off the ground, but it is at this critical early growth stage where support is most needed.  This is where AVANT’s funding and our team’s commercial operating perspective can make a pivotal impact, helping them navigate the path to sustained growth and market success.

What is driving the funding gap?

The AVANT BIO team, similar to other funds, talks to hundreds of companies a year. What we have noticed recently with our focus area of non-therapeutics life sciences, is that many companies have achieved early commercial traction with angel, grant and/or seed funding and are generating anywhere from $2-7 million in annual revenue but are struggling to get the next financing closed.

What we learned through conversations with other investors in the space was that for many earlier stage funds, the round size and pro forma ownership didn’t align with their mandate. For later stage traditional growth or private equity funds, the revenue scale (or cash flow profile) of these early growth companies doesn’t quite yet align with their risk parameters.

So, while there is decent support for companies to get started and operationalize and a strong cohort of larger funds down the line waiting to pick the winners that emerge, there remains a wide-open set of opportunities for investors interested in early commercial businesses that have both the expertise in scaling businesses, domain expertise, and a network to unlock partnerships, create strategic collaborations, and open doors to new markets. 

Where others avoid, we see opportunity – early growth is our sweet spot

This observation was intriguing to us, as we at AVANT BIO view early growth as a very opportune stage to invest in a business. Given our team’s perspective, we view the early growth stage as our sweet spot as we are comfortable addressing the “commercial risk” given our deep understanding of current markets and potential demand for products. Through our network of industry peers, we are able to quickly gain a deep understanding of target customers. When we feel the commercial path forward is “solvable”, we are comfortable stepping in and partnering with the companies to support them as they build from early growth, to the next growth phase. Early growth is a unique stage of a company’s life that has been a challenge for many in the investing world. We at AVANT BIO have a differentiated view of the existing opportunities presented by these companies, primarily driven by our team’s unique outlook and focus on helping each company grow from the earliest days of revenue to a scaled commercial business.