Who Funds Science-Driven Companies — and Who Actually Does the Science

A clear-eyed look at venture capital (VC), investment banking (IB), and private equity (PE) across biotech and technology

Prepared by Richstorm.co

The investment system is not one institution. Venture capital, investment banking, and private equity each occupy a distinct role — designed for a different stage of a company's life and a different kind of risk. Understanding where the science actually gets evaluated in this system, and where it does not, is the foundation of a science-first investment approach.

Venture Capital: Where Scientific Judgment Is the Job

Venture capital is the institution designed for scientific and technical uncertainty. VC firms fund companies before revenue exists, when the product is unproven and the market is unconfirmed. Their economics are built around high failure rates — they invest in portfolios expecting most bets to fail, with a small number of successes generating returns that justify the whole fund.

The science assessment at a VC firm is genuine and central. Flagship Pioneering backed Moderna through the early development of its mRNA platform years before any product was approved or any meaningful revenue existed. The investment thesis was entirely scientific: that mRNA could function as a programmable medicine platform across multiple disease categories. No financial model could validate that thesis in 2010. Only scientific judgment about the platform's biological plausibility could.

The same logic applies in technology. Sequoia Capital and Khosla Ventures backed Anthropic from its early stages — evaluating AI architecture, safety research methodology, and the technical credentials of the founding team before commercial revenue existed. OpenAI received early backing on similar terms. These were genuine scientific and technical bets, not financial models built on cash flows.

VC is the one institution in the investment system where scientific judgment is not supplementary — it is the primary investment decision. Everything else is downstream of the scientific bet.

Big Pharma M&A: Science Done Internally, Transaction Done by IB

Large pharmaceutical companies acquiring biotech assets are also making scientific judgments — but the science happens inside the acquiring company, not inside the investment bank advising on the deal.

Pfizer's $43 billion acquisition of Seagen in 2023 is the clearest recent example. The decision to acquire Seagen was a scientific judgment about antibody-drug conjugate technology — a modality that Pfizer's own oncology R&D leadership had concluded was becoming a core pillar of cancer treatment. Pfizer's scientists assessed ADC linker chemistry, payload delivery mechanisms, and target selection capabilities before any financial negotiation began. Pfizer's CEO Albert Bourla described it plainly: the company was acquiring not just approved drugs but the ADC platform itself — the scientific and manufacturing capability to generate a stream of future oncology assets.

The investment bank did not make that scientific judgment. It ran the transaction process — structured the deal, managed the regulatory timeline, and coordinated the financial mechanics of a $43 billion acquisition. The science was decided by Pfizer's internal scientists. The bank executed what the scientists had already concluded.

This pattern holds across pharma M&A broadly. The looming patent cliff — with major pharmaceutical companies facing over $170 billion in revenue losses by 2032 as blockbuster drugs lose exclusivity — is driving aggressive acquisition of clinical-stage biotech. But the decision about which biotech to acquire is fundamentally scientific. A pharma company needs to assess which platform technologies are credible, which modalities fit their manufacturing capabilities, and which disease targets align with their commercial infrastructure. Those judgments require internal scientists. The bank arrives after the scientific decision is made.

In pharma M&A, the science is done by the buyer's internal R&D team. The investment bank runs the process. Confusing the two overstates what banks contribute and obscures where the real analytical work happens.

Investment Banking: A Narrow and Honest Scientific Role

Investment banks that cover healthcare hire clinicians and scientists. The question is what those credentials actually enable — and where they genuinely cannot help.

In technology, the answer is straightforward: by the time IB is involved, the company has revenue and the financial model works. When Snowflake raised $3.9 billion in the largest software IPO ever in 2020, it had enterprise customers and commercial revenue. When CrowdStrike and Datadog went public, each had measurable recurring revenue. IB priced these offerings on financial metrics. No scientific credential was required or meaningfully applied.

In biotech, IB has one specific window where scientific expertise is relevant: the pre-Phase 3 IPO, where a company raises public capital before its pivotal trial has read out. Here, the bank's clinically trained analysts contribute genuine value in assessing commercial attractiveness — disease area unmet need, patient population size, reimbursement dynamics, competitive landscape. This is real market judgment that requires medical training.

What the bank's scientists cannot do is predict whether the drug will work. Research consistently finds that 50 to 70% of drugs entering Phase 2 fail to complete Phase 3, with inadequate efficacy as the primary cause. The bank receives clinical data from the company going public — not from independent sources — on a sixteen-to-twenty-week transaction timeline. No credential resolves the biological question that the Phase 3 trial itself is designed to answer.

The 2020 to 2021 biotech IPO wave made this limitation visible at scale. Over 180 biotech companies went public, raising nearly $30 billion. Many had drugs still in Phase 1 or had not yet begun human trials. Sana Biotechnology and Lyell Immunopharma raised over $1 billion combined in 2021 IPOs while being at least twelve months from clinical testing. Both subsequently lost more than two-thirds of their value — not because of any specific trial failure, but because the scientific questions their valuations depended on remained unanswered.

Private Equity: Science Already Answered

Private equity enters when the science has been resolved — by regulators, by the market, or by both. At that point, the investment is a financial and operational question, not a scientific one. This holds equally in biotech and technology.

In biotech, Bain Capital's $3.3 billion carve-out of Mitsubishi Tanabe Pharma in 2025 is a clean example. Mitsubishi Tanabe has established commercial drugs across immunology, central nervous system diseases, and metabolic conditions. Decades of clinical use and regulatory approval have answered the scientific questions. Bain's analysis was built on cash flows, margin structure, and operational improvement potential. No scientific assessment of drug efficacy was needed or relevant.

In technology, PE operates identically. Blackstone's $16 billion acquisition of data center platform Airtrunk in 2024 — the largest PE deal of that quarter — was built on Airtrunk's established revenue, contracted capacity, and infrastructure footprint across the Asia-Pacific region. The technology question — whether data centers are a durable business — was answered by years of hyperscaler demand and long-term customer contracts. Blackstone's analysis was about cash flow visibility, expansion capital deployment, and the structural tailwind of AI-driven compute demand. Similarly, Turn/River Capital's $4.4 billion acquisition of SolarWinds in 2025 was a financial bet on a profitable software business with stable recurring revenue — not a scientific judgment about whether the software architecture was superior.

The pattern across both sectors is consistent: PE acquires businesses where the product works, customers pay for it, and the financial model can be built from observable data. Scientific uncertainty is not PE's tool — it is VC's.

PE does occasionally invest in late-stage clinical companies in biotech — particularly when the IPO market is closed and companies need capital to reach their next milestone. But even here, PE typically enters after Phase 2 data exists and the scientific risk has been substantially reduced. True pre-revenue scientific uncertainty remains VC territory.

The Institutional Map

What This Means for the Science-First Investor

The picture that emerges is not that these institutions are incompetent. Each is doing exactly what it is designed to do. The gaps are structural — and they create specific, durable opportunities.

In technology, the system works cleanly. VC takes the early technical risk; by the time IB and PE are involved, revenue exists and financial analysis is the right tool. The science-first investor's edge in technology is not about filling an institutional gap — it is about reading platform durability and competitive trajectory before financial metrics confirm it.

In biotech, the structural gap is more acute. There is a specific window — the pre-Phase 3 IPO — where public investors hold scientific risk that the financial system cannot assess well. The bank's commercial judgment is genuine but limited. The scientific question remains open. And unlike pharma M&A — where the acquiring company's own scientists do the biological assessment — public market investors have no equivalent internal scientific team making that judgment on their behalf.

The science-first investor who builds an independent view of the underlying biology — from published research, trial registries, mechanism-of-action literature, and scientific conference data — is working from a different information base than any institution in this system produces. Not better resourced. Not faster. But structurally unconstrained: no deal timeline, no company-controlled data package, no commercial pressure to close.

The science is done somewhere in every transaction involving a science-driven company. In VC, the partners do it. In pharma M&A, the buyer's internal scientists do it. In PE, it does not need to be done. In the pre-Phase 3 IPO, it is the one place in the system where it is most needed and least well-served — and that is where the science-first investor's independent assessment has the most value.

Postscript: What Happened to Sana and Lyell

The 2021 IPOs of Sana Biotechnology and Lyell Immunopharma — cited earlier as examples of premature public market entry — offer an instructive five-year update. The two companies have followed different trajectories, but both illustrate the same underlying point.

Sana Biotechnology IPO'd at $38.20 per share in February 2021. As of mid-2026, the stock trades near $3 — a loss of roughly 92% from the IPO price. But the scientific story has not been uniformly negative. In January 2025, Sana reported that the first patient with Type 1 diabetes to receive its hypoimmune-modified islet cells — engineered to evade immune rejection without immunosuppression — was producing insulin at four weeks post-transplant. By March 2026, fourteen-month follow-up data confirmed the cells remained safe, continued to evade immune detection, and continued to function. This is genuinely novel science. The problem was never that the platform was worthless. The problem was that investors in 2021 paid for answers that took five years to begin arriving — and the cash runway is now tight, with the company burning capital while the pivotal scientific questions remain unresolved.

Lyell Immunopharma's trajectory has been more dramatic in both directions. The company conducted a 1-for-20 reverse stock split in May 2025 — a clear signal of how far the stock had fallen from its 2021 IPO. But the clinical data has since become genuinely compelling. At the December 2025 American Society of Hematology meeting, Lyell presented data from its lead CAR T program showing a 93% overall response rate and 76% complete response rate in patients with relapsed or refractory large B-cell lymphoma — strong results in a difficult indication. The company has since commenced a Phase 3 head-to-head trial against existing approved CAR T therapies, with pivotal data expected in mid-2027.

Lyell has in effect transformed from a pre-clinical platform company that went public too early into a late-stage clinical company with meaningful data. That transformation took five years. Investors who bought at the 2021 IPO are still deeply underwater despite the scientific progress.

Being right about the science eventually does not compensate for paying 2021 IPO prices. The timing of when you enter matters as much as whether the science ultimately proves out. This is the specific asymmetry that the pre-Phase 3 IPO window creates — and it is why independent scientific assessment, done before the market prices the outcome, is structurally different from buying after the institutional system has already set the price.

This article is part of RichStorm's series on how financial institutions engage with science-driven industries. The previous article — 'Why Private Equity Doesn't Need to Understand the Science' — is available at richstorm.co.

RichStorm publishes science-first investment analysis at richstorm.co. This article represents the author's analytical perspective and does not constitute investment advice.