Venture capital funding for private biotechnology companies saw a significant decline in the second quarter of 2025, according to new data released by HSBC Innovation Banking. The report shows that the downturn erased the momentum seen earlier in the year, which had started on a strong note for biotech startups seeking investment. The findings highlight a broader trend of reduced venture capital activity within the biotech sector as 2025 has progressed.
HSBC’s analysis points to a marked slowdown in funding levels compared to the first quarter, reflecting challenges faced by private biotech firms in securing financial backing. This development adds further evidence to concerns about tightening investment conditions within the industry. The data underscores shifting dynamics in venture capital allocation and its impact on emerging biotechnology companies.
“First financings” for biotech startups fell from a total of $2.6 billion in the first quarter to $900 million over the following three months — the lowest total in five quarters. Overall venture funding for biotechs fell from $7 billion to $4.8 billion, tied for the worst quarterly total in the last three years. Meanwhile, the number of funding deals involving drug candidates from China continued to climb.
Four companies formed around medicines discovered there raised first funding rounds of at least $50 million in the first half of 2025, more than the total number in each of the previous two years. Jonathan Norris, a managing director at HSBC Innovation Banking, said a combination of worries over pharmaceutical tariffs, research funding cuts, and leadership changes at public health agencies drove a slump that led to startups’ worst quarter in terms of seed or Series A funding rounds since 2023. This uncertainty has made investors more conservative, prompting them to shy away from smaller deals and band together for larger fundings, such as “megarounds” of $100 million or more.
These investments allow companies to “get almost three traditional rounds” through one financing, Norris said. Yet even megarounds dipped from 21 over the first three months to 16 between April and June.
Biotech funding sees sharp decline
Additionally, the crossover investors that often support the rounds preceding an IPO retreated from biotech venture deals. Only two of the top eight rounds included new crossover investors, a decline from each of the last two years. “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,” Norris wrote in the report.
Their disappearance is, in part, due to the poor performance of companies that went public in 2024. The median stock price decline for last year’s class was 70% at the end of the first half, according to Norris. One bright spot is deals for private companies, which give venture capital firms another chance at investment returns.
Last year, 17 drug startups were acquired — the highest total since 2020 — and buyouts are proceeding at a similar pace in 2025. These deals prove “you can still get to an exit with early data in the right space,” Norris said. Global venture fundraising by biotechs fell to $12.7 billion in the first half of 2025, a 25% decrease from $16.9 billion in the same period of 2024 and a 60% drop from the peak in the first half of 2021.
The last year with a first-half total lower than this year’s was 2017. Despite the decrease in total funds raised, companies that are securing financing are doing so at substantial amounts. The average fundraising round amounted to $40.1 million, with a median of $33 million per round, marking the highest median in the past decade.
For comparison, the average round size in the first half of 2021 was higher at $44.1 million, making the 2025 figure the second-highest within the observed timeframe. Last year, the average offering was $34.8 million, with a median of $16.4 million. The data suggests that while the quantity of venture funding has diminished, the quality and size of successful fundraising rounds are growing, indicating a potentially more competitive but rewarding environment for biotech ventures.