Biotech Venture Funding Plummets in Q2 2025, HSBC Report Reveals

Venture capital funding for biotechnology startups has experienced a significant downturn in the second quarter of 2025, according to a new report from HSBC Innovation Banking. The decline has erased the promising start to the year, raising concerns about the future of biotech innovation and investment.

Sharp Decline in First Financings and Overall Funding

HSBC's data shows a dramatic drop in "first financings" for biotech startups, plummeting from $2.6 billion in Q1 to a mere $900 million in Q2 – the lowest total in five quarters. Overall venture funding for biotechs also fell from $7 billion to $4.8 billion, matching the worst quarterly performance in the past three years.

Jonathan Norris, a managing director at HSBC Innovation Banking, attributes this slump to a combination of factors, including concerns over pharmaceutical tariffs, research funding cuts, and leadership changes at public health agencies. These uncertainties have led investors to adopt a more conservative approach, shying away from smaller deals and focusing on larger, more established ventures.

Megarounds and Crossover Investors Retreat

The report highlights a decline in "megarounds" – funding rounds of $100 million or more – from 21 in Q1 to 16 in Q2. This decrease coincides with a notable retreat of crossover investors, who typically support rounds preceding an IPO. Only two of the top eight rounds in Q2 included new crossover investors, a significant drop from previous years.

Norris explains, "Many crossover investors are at their own proverbial crossroads, with too many private investments that have yet to IPO and many public companies struggling with low market caps." This retreat is partly due to the poor performance of companies that went public in 2024, with HSBC reporting a median stock price decline of 70% for last year's IPO class by the end of H1 2025.

China's Growing Influence and M&A Activity

Despite the overall downturn, the report notes an interesting trend in the increasing number of funding deals involving drug candidates from China. In the first half of 2025, four companies formed around medicines discovered in China raised first funding rounds of at least $50 million, surpassing the total number in each of the previous two years.

On a more positive note, the pace of M&A deals for private companies has remained steady, providing venture capital firms with an alternative route to investment returns. The report indicates that 17 drug startups were acquired in 2024 – the highest total since 2020 – with 2025 showing a similar trajectory. Norris comments, "You can still get to an exit with early data in the right space," suggesting that strategic acquisitions remain a viable option for well-positioned startups.