Funding Stage Glossary
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Funding Stage Glossary: From Seed to IPO
Definitions of every biotech funding stage, instrument, and investor type — from the first angel cheque to public markets
Updated Q4 2025 | BioPharmaWire Editors
Biotech fundraising has its own language. A founder approaching their first institutional raise, or an investor new to life sciences, will encounter terms — pre-money, Series A, SAFE, crossover, PIPE — that are used with precision by insiders and almost never defined clearly in public. This glossary covers every major funding stage, instrument, and investor type in the biotech capital stack, across four structured tables: funding stages, financing instruments, investor types, and key terms.
Part 1: Funding Stages at a Glance
Stage | Round Size | Pre-Money Range | Lead Investors | What Investors Are Assessing |
Pre-Seed | $500K – $3M | $3M – $20M | Founders, angels, friends & family | Is the science real and is the founding team credible? |
Seed | $3M – $25M | $10M – $80M | Angel networks, early-stage VCs, family offices | IP defensible? In vivo POC data? Can the team get to IND? |
Series A | $20M – $80M | $50M – $250M | Specialist biotech VCs, some crossover | IND filed or imminent. Phase 1 design credible? Team has done this before? |
Series B | $60M – $200M | $150M – $1B+ | Large healthcare VCs, crossover funds | Phase 1/2 data in hand. Clear path to Phase 3 or partnership? |
Series C+ | $100M – $500M+ | $500M – $3B+ | Crossover funds, sovereign wealth, large VCs | Pivotal data. NDA/BLA readiness. Commercial infrastructure? |
Crossover / Pre-IPO | $100M – $400M | Market-derived | Crossover funds (RA Capital, Foresite, Boxer) | IPO readiness. Public market catalyst within 18 months? |
Part 2: Funding Stages — In Depth
Pre-Seed
The earliest stage of company formation, typically before a legal entity is fully established or before any external investment has been raised. Pre-seed funding usually comes from founders themselves, friends and family, or angel investors. At this stage the company typically has a scientific concept, early IP filings, and a founding team — but no formalised corporate structure, no audited financials, and no validated nonclinical data package. Pre-seed rounds are typically $500K to $3M. Investors at pre-seed are primarily assessing the founding team and the scientific hypothesis — everything else can be built.
Seed
The first formal institutional or angel financing round. A seed round funds the company through IND-enabling studies, IP protection, and foundational team-building. Seed investors are typically angel networks, early-stage specialist VCs, or biotech-focused family offices. Seed rounds in biotech range from $3M to $25M, with valuations typically between $10M and $80M pre-money depending on the therapeutic area and quality of the science. At seed stage, investors are primarily assessing the founding team, the IP defensibility, and the quality of the nonclinical proof-of-concept data. The question investors are asking: can this team get to IND?
Series A
The first major institutional venture capital round. A Series A is typically raised once the company has filed an IND or is within 6-12 months of doing so. The proceeds fund Phase 1 clinical operations, CMC development, and team build-out. Series A rounds in biotech range from $20M to $80M, with pre-money valuations typically between $50M and $250M for well-positioned programs. Institutional VCs lead Series A rounds and take board seats. The Series A investor syndicate defines the governance structure of the company for the life of the private financing. The single most important de-risking milestone before a Series A for most programs is a filed, active IND.
Series B
A larger financing round raised after Phase 1 or early Phase 2 data is available. Series B rounds fund Phase 2 clinical programs and, for larger programs, Phase 3 initiation. Typical range: $60M to $200M. At Series B, the investor base broadens to include larger healthcare-focused VCs, crossover investors, and occasionally sovereign wealth funds. Pre-money valuations at Series B range from $150M to $1B+ depending on therapeutic area, data quality, and competitive landscape. Breakthrough Therapy Designation from FDA at this stage can add 30-50% to pre-money valuation versus an undesignated asset at the same clinical stage.
Series C and Beyond
Late-stage private financing rounds that fund pivotal Phase 3 programs or pre-commercialisation activities. Some biotech companies raise multiple rounds before going public or being acquired. At this stage, crossover investors are the dominant source of capital. Round sizes range from $100M to $500M+. Companies at this stage are typically within 2-3 years of an NDA or BLA submission or a significant M&A exit.
Crossover Round / Pre-IPO Round
A financing round conducted immediately before an IPO, in which institutional investors who also participate in public markets invest in the company at an agreed pre-money valuation. Crossover investors then participate in the IPO. A crossover round is the strongest signal of IPO readiness — it provides price discovery, institutional credibility, and a committed anchor base for the IPO book. Leading crossover investors include RA Capital Management, Foresite Capital, Boxer Capital, Cormorant Asset Management, and Perceptive Advisors. Crossover rounds are typically conducted 6-18 months before the IPO.
Part 3: Financing Instruments
Instrument | What It Is | When Used | Key Consideration |
Preferred Equity | Shares with rights senior to common: liquidation preference, anti-dilution, pro-rata. The standard instrument for institutional VC rounds. | Series A and beyond; all institutional rounds | Term sheet terms matter enormously — participating vs non-participating preference changes outcomes significantly in a moderate exit |
Convertible Note | Debt that converts to equity at the next round, typically at a discount (15-25%) and/or with a valuation cap. Accrues interest (4-8% p.a.) and has a maturity date. | Pre-seed, seed, and bridge financing between rounds | Stacked notes with different caps create cap table complexity. Clean up before Series A where possible |
SAFE | Simple Agreement for Future Equity. Like a convertible note but no interest, no maturity date, not debt. Converts at the next priced round. | Pre-seed and early seed. Less common in biotech than software due to longer timelines | No maturity date means no pressure to convert — but also no leverage for the investor if the company stalls |
PIPE | Private Investment in Public Equity. New shares sold to selected institutional investors in a public company, typically at a small discount to market. | Public biotech companies raising capital between catalysts; SPAC mergers | Registration rights required — company must register shares for resale within an agreed period or face penalties |
ATM (At-the-Market) | Ongoing programme allowing a public company to sell shares incrementally into the open market at prevailing prices through a designated agent. | Public biotech companies managing runway between clinical catalysts | Dilutive if stock is depressed; best used opportunistically when stock is trading strongly |
Venture Debt | Debt financing (typically $5-50M) secured against company assets or future royalties. Higher rate than bank debt; usually includes warrant coverage. | Post-Series A to extend runway without additional equity dilution | Warrants are a hidden dilution cost. Total cost of capital (interest + warrant value) often exceeds 15-20% p.a. |
Royalty Financing | Upfront capital in exchange for a percentage of future product revenues. Non-dilutive — no equity issued. | Clinical-stage companies with a credible path to commercial revenue | Long-term cost can exceed equity financing if the product is highly successful. Model the NPV carefully. |
Government Grants | Non-dilutive funding from government agencies: NIH SBIR/STTR (US), Innovate UK (UK), Horizon Europe (EU), Australian R&D Tax Incentive. | All stages; particularly valuable at pre-seed and seed to extend runway without dilution | Australian R&D Tax Incentive (43.5% refundable offset) is one of the most competitive globally for clinical-stage programs |
Part 4: Investor Types
Investor Type | Focus | Typical Stage | Cheque Size | What They Bring Beyond Capital |
Angel | Individual HNW investors, often former pharma/biotech execs or founders | Pre-seed, Seed | $50K – $500K | Domain expertise, introductions to institutional investors, credibility to the founding team |
VC — Specialist Biotech | Life sciences-focused VC funds (ARCH, Atlas, Third Rock, Flagship, RA Capital) | Seed through Series B | $5M – $100M | Board seats, operational support, network of KOLs and CROs, follow-on capital, syndicate introductions |
VC — Generalist | Multi-sector VC funds with life sciences exposure (a16z Bio, GV, Foresite) | Seed through Series B | $5M – $100M | Broader network, platform services, tech-bio crossover expertise; less therapeutic area depth than specialist funds |
Corporate VC (CVC) | Pharma/healthcare company venture arms (Pfizer Ventures, Roche VF, Leaps by Bayer) | Seed through Series B | $5M – $50M | Strategic validation, potential partnership or acquisition interest, scientific expertise, clinical network |
Crossover Fund | Funds investing in both private late-stage and public biotech (RA Capital, Foresite, Boxer, Cormorant) | Series B, Pre-IPO | $20M – $150M | Bridge to public markets, IPO credibility, price discovery, anchor position in IPO book |
Family Office | Private investment offices for UHNW families; some with dedicated life sciences programmes | Seed through Series B | $1M – $30M | Patient capital (no 10-year fund lifecycle), flexible terms, fewer governance requirements than institutional VCs |
Sovereign Wealth Fund | Government-owned investment funds (Temasek, Mubadala, GIC, PIF) | Series B and beyond | $50M – $500M | Large cheque size, long investment horizon, strategic alignment with national health industry development goals |
Strategic / Pharma Partner | Large pharma investing in or licensing rights from biotech (licensing deals, equity investments, co-development) | Any stage | Varies widely | Capital + validation + commercial infrastructure + potential acquirer. Terms of deal require experienced BD and legal counsel. |
Part 5: Key Terms Every Biotech Founder Should Know
Term | Definition | When It Matters Most |
VALUATION & OWNERSHIP | ||
Pre-money valuation | The agreed value of the company before new investment is added. If a company raises $20M at a $60M pre-money valuation, investors own 25% of the post-money company ($20M / $80M post-money). | Every priced round |
Post-money valuation | Pre-money valuation plus the new investment amount. Post-money = pre-money + round size. This is the total implied value of the company immediately after the round closes. | Every priced round |
Fully diluted shares | Total shares outstanding if all options, warrants, convertible notes, and SAFEs were converted into common shares. Ownership percentages are always calculated on a fully diluted basis. | Cap table analysis, term sheet negotiation |
Option pool | Shares reserved for employee equity incentives. Typically 10-20% of fully diluted shares. Usually established or refreshed pre-money, which dilutes founders before the investor’s ownership is calculated. | Series A negotiation |
Cap table | Capitalisation table showing all shareholders (common and preferred), option holders, warrant holders, and convertible note holders and their respective ownership percentages on a fully diluted basis. | Every financing round and M&A transaction |
PREFERRED SHARE TERMS | ||
Liquidation preference | The right of preferred shareholders to receive their investment back (and sometimes a multiple) before common shareholders receive anything in a sale or liquidation. 1x non-participating is standard and founder-friendly; 2x or participating preferences are investor-friendly. | Acquisition exit |
Participating preferred | Investors receive both their liquidation preference AND their pro-rata share of remaining proceeds after the preference is paid. Also called ‘double-dipping.’ Significantly reduces common shareholder returns in moderate exits. | Acquisition exit |
Anti-dilution protection | Protects investors if the company raises money at a lower valuation (a down round). Weighted-average anti-dilution (standard) adjusts the conversion price proportionally. Full-ratchet (founder-punishing) resets the conversion price to the new round’s price entirely. | Down rounds |
Pro-rata rights | The right of existing investors to participate in future financing rounds proportionally to maintain their ownership percentage. Investors with pro-rata rights can prevent dilution in later rounds. Super pro-rata rights allow investors to take more than their proportional share. | Series B and beyond |
Drag-along rights | Allows a majority of shareholders to require minority shareholders to approve and participate in a sale of the company on the same terms. Prevents a small minority from blocking an acquisition. | M&A transactions |
Right of first refusal (ROFR) | Gives the company (and sometimes other investors) the right to purchase shares before a shareholder sells to a third party. Common in VC-backed companies to control who becomes a shareholder. | Secondary share sales |
Information rights | Contractual right of investors to receive regular financial and operational information (monthly or quarterly management accounts, annual audited financials). Standard for institutional investors. | Ongoing investor relations |
Board seat | Contractual right of an investor to appoint a director to the company’s Board of Directors. VC investors typically receive board seats at Series A and beyond. Board composition governs major company decisions. | Series A onwards |
CONVERTIBLE INSTRUMENTS | ||
Conversion discount | The percentage discount at which a convertible note or SAFE converts into equity at the next priced round relative to the new round price. Typical range: 15-25%. Compensates early investors for the additional risk of investing before the price is set. | Note/SAFE conversion |
Valuation cap | The maximum pre-money valuation at which a convertible note or SAFE converts. Protects early investors if the company raises its next round at a much higher valuation. The note converts at the lower of the cap price or the new round price (less discount). | Note/SAFE conversion |
Maturity date | The date on which a convertible note must either convert into equity or be repaid. Notes that reach maturity without converting create legal and operational risk for the company. Typical maturity: 18-24 months from issuance. | Bridge financing |
Bridge financing | Short-term financing (usually convertible notes) from existing investors to extend runway between priced rounds. Used when the company needs more time to generate data before a full round. Not a substitute for a priced round. | Between rounds |
Down round | A financing round conducted at a lower pre-money valuation than the previous round. Triggers anti-dilution protections, dilutes founders and employees significantly, and signals financial distress. Sometimes unavoidable but damaging to morale and cap table structure. | Financial distress |
EXIT & PUBLIC MARKETS | ||
IPO (Initial Public Offering) | The first sale of shares in a company to the public through a stock exchange. Requires SEC registration (S-1 filing), underwriting banks, a roadshow, and a bookbuild pricing process. Enables liquidity for existing shareholders and raises new capital. | Public market exit |
SPAC (Special Purpose Acquisition Company) | A blank-cheque public vehicle that raises capital through its own IPO and then merges with a private company, taking it public. Was popular in biotech 2020-2021; now largely disfavoured due to poor post-merger performance and SEC scrutiny. | Alternative to IPO (rare in 2025) |
PIPE (Public equity raise) | Private Investment in Public Equity. Shares sold directly to selected institutional investors in a public company. Used both as a capital-raising tool by public biotechs and as part of SPAC merger financing. | Post-IPO capital raising |
Lock-up period | A contractual restriction preventing insiders (founders, VCs, employees) from selling shares for a specified period after an IPO. Standard duration: 180 days. Prevents insiders from flooding the market with shares immediately after the IPO. | IPO |
Greenshoe / Over-allotment option | An option granted to underwriters to purchase additional shares (up to 15% of the offering) to stabilise the stock price in the 30 days after an IPO. If the stock trades above the IPO price, the underwriter exercises the option. If below, they buy shares in the market. | IPO aftermarket |
M&A exit / Acquisition | The sale of the company to a larger pharmaceutical or healthcare company. The most common biotech exit. Acquisition premiums for biotech companies typically range from 30-100%+ over the unaffected share price for public companies. | Strategic exit |
Milestone payment | A contingent payment made by an acquirer or licensing partner upon achievement of a specific development, regulatory, or commercial milestone (e.g. Phase 2 completion, FDA approval, first commercial sale). Milestone structures allow acquirers to pay more total value while managing risk. | Licensing and M&A deals |
Royalty | A percentage of net sales paid by a licensee to a licensor (or royalty financier) in exchange for the right to commercialise a product. Typical royalty rates: 5-15% of net sales for platform licenses; 8-20% for late-stage asset licenses. | Licensing and royalty financing |
The Biotech Capital Stack: How It All Fits Together
A typical biotech company that reaches commercial stage will have passed through most or all of the following financing events, often in this order: pre-seed angel investment, seed round from specialist VCs, Series A at IND filing, Series B on Phase 1/2 data, crossover round 6-18 months before IPO, IPO or acquisition. At each stage, the instruments, investor types, and key terms described in this glossary apply in different combinations.
Not every company follows this path. Many are acquired before reaching the IPO. Some raise only a seed round before being acquired. Some reach Phase 3 entirely on non-dilutive government funding and partnerships without ever raising a traditional VC round. The path depends on the science, the team, the therapeutic area, and the market environment. But the language of biotech fundraising — the terms, the stages, and the instruments — is consistent across all of them, and fluency in that language is a prerequisite for navigating the process successfully.
This glossary is an editorial product of BioPharmaWire. It is updated regularly. It does not constitute financial, legal, or investment advice. Founders and investors should consult qualified legal and financial advisors before entering any financing transaction.