Biotech Venture Funding Plummets in Q2 2025, HSBC Report Reveals

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

Sharp Decline in Funding and First Financings

The HSBC report, published on Thursday, highlights a dramatic decrease in both overall venture funding and first financing rounds for biotech companies. Overall venture funding fell from $7 billion in Q1 to $4.8 billion in Q2, matching the lowest quarterly total in the past three years. More alarmingly, first financings for biotech startups plummeted from $2.6 billion to a mere $900 million, the lowest figure in five quarters.

Jonathan Norris, a managing director at HSBC Innovation Banking, attributes this slump to a combination of factors, including concerns over pharmaceutical tariffs, cuts to research funding, and leadership changes at public health agencies. These issues have created an atmosphere of uncertainty, prompting investors to adopt a more conservative approach.

Shift in Investment Strategies

The funding landscape has seen a notable shift in investor behavior. Venture firms are now favoring larger, more secure investments over smaller, riskier deals. This trend is evidenced by the rise of "megarounds" – funding rounds of $100 million or more – which allow companies to secure funding equivalent to almost three traditional rounds in a single financing event.

However, even megarounds have not been immune to the downturn, with the number dropping from 21 in Q1 to 16 in Q2. Moreover, crossover investors, who typically support rounds preceding an IPO, have largely retreated from biotech venture deals. Only two of the top eight rounds in Q2 included new crossover investors, a significant decline from previous years.

China's Growing Influence and M&A Activity

Despite the overall decline, the report notes some positive developments. Funding deals involving drug candidates from China continue to rise, with four companies formed around Chinese-discovered medicines raising first funding rounds of at least $50 million in the first half of 2025. This figure surpasses the total number of such deals in each of the previous two years.

Additionally, mergers and acquisitions (M&A) activity for private companies has maintained a steady pace. In 2024, 17 drug startups were acquired – the highest total since 2020 – and 2025 is proceeding at a similar rate. Norris suggests that these deals demonstrate the possibility of "getting to an exit with early data in the right space," providing venture capital firms with alternative opportunities for investment returns.

As the biotech industry grapples with these funding challenges, the coming months will be crucial in determining whether this downturn is a temporary setback or a sign of more profound changes in the investment landscape.