From Federal to State: Building the New Life Sciences Capital Stack | Life Sciences Snapshot – Q3 2025
A Quarterly Report on Financing Trends
11 minute read | July.21.2025
This year, U.S. VC funding into the life sciences sector has cooled: Q1 softness was followed by a decade low in VC transactions in Q2. Despite the moderation in dealmaking volume, investors continued to deploy sizable checks, enabling the total capital invested in Q2 to outperform pre-pandemic levels of quarterly investment. Thus, fewer companies raised money, but those that did secured record check sizes while a fragile exit window kept many later-stage startups private for longer. This edition highlights quarterly investment trends and features a roundtable discussion on what’s driving the shift toward nontraditional funding sources, how companies can tap into state-level programs, and how investors and operators are adapting their strategies in response to this changing landscape.
Key findings include:
- Deal flow remained subdued. Combined Q1 and Q2 financings represented only 42.7% of 2024’s total deal value, and the AI-led resurgence visible in other VC verticals has yet to spread to life sciences, suggesting continued caution toward capital-intensive clinical development.
- Capital was concentrated in larger rounds. Rounds over $25 million have absorbed 81.3% of the dollars deployed YTD, pushing median valuations to fresh highs at the early and venture-growth stages and making venture-growth companies the prime beneficiaries of investors’ risk-off posture.
- Startups looking to exit favored trade sales over IPOs. Only 46 VC-backed life sciences companies have exited YTD, and just seven of those exits were IPOs. Acquisitions accounted for the most exit liquidity, and their median exit value rose to $350 million by Q2 as strategics paid up for margin-enhancing assets.
