What happens when you get a term sheet - but it's half your target valuation? This is the situation a founder I know found herself with a dream investor.

She had a strong pre-clinical package.. clean tox data, a $4B validated market... all the boxes checked.

The investor was bought in and engaged, and the due diligence went smoothly.

As the days went on, she found herself thinking.. this. is. it.

And it was - the term sheet came.

But it came at $8M pre-money. She was expecting $15M.

We had two parties looking at the same science, same company, same data. Yet arriving at two completely different numbers - why?

The tricky part is that neither of them was wrong. They just weren't solving the same problem.

She was valuing what the drug could be worth. The investor was pricing the probability of getting there.

That gap - between what you think you're worth and what they're willing to put on paper - is the hardest part of closing a biotech raise. And it has almost nothing to do with your pitch.

From my experience, this isn’t a negotiating problem. It's a framing problem.

And once you understand how investors are actually modeling your company, you stop fighting the gap and start closing it.

Let’s take a look.

Before we get into what investors are doing, it helps to see how biotechs are actually valued across the industry.

Because depending on who's across the table from you, the same company, same science, same team, same IP… can legitimately be worth three very different numbers.

Each model is internally consistent. And in most cases, each one also produces an entirely different story.

The founder's model optimizes for long-term potential. The pharma model optimizes for strategic fit and build-vs-buy math. The VC model optimizes for probability-weighted return within a fund cycle, usually 7–10 years.

This isn't a negotiating disadvantage. It's actually the most useful thing you can understand going into a raise: your investor isn't skeptical of your science. They're just solving a different equation with different variables.

Contrary to popular belief, investors don't just look at your deck and arrive at a valuation on vibes 🙂

In most cases, they're combining three inputs (sometimes explicitly, often intuitively) before you even walk in the room.

Input 1: Ownership target

Every VC fund has a target ownership range they need to hit to make their fund math work. For most early-stage biotech funds, that's 15–25% per deal. This means they're often working backward from a desired ownership stake to arrive at your pre-money valuation.

Here's what that looks like in practice: if a fund wants 20% ownership and is writing a $5M check, the math implies a $25M post-money valuation - or roughly $20M pre-money. The investor may not say this out loud. But that calculation is always happening before the term sheet is drafted.

The implication: your valuation is partially determined by fund mechanics that have nothing to do with your company. Understanding the fund size and typical check size of your target investors tells you something about the bounds of their pre-money range.

Input 2: Comparable transactions

Before any investor anchors to a specific number, they're benchmarking against what similar companies at a similar stage have raised at in the last 18–24 months. Therapeutic area, development stage, team profile, and geography all factor in. This sets the floor and ceiling of the conversation.

This is why comps matter so much. If you don't know your comps going in, you're leaving it to the investor to pick them for you. And they will - based on deals that support their number, not yours.

Agreeing on the right comparables and having a mature conversation about which ones apply and why, is a completely normal part of the negotiation process.

It's not adversarial, it's expected. Just make sure you've done the homework before you walk in.

Input 3: Milestone back-calculation (rNPV at Series A)

At seed stage, this math is high level. At Series A, it becomes a lot more nuanced. The investor is modeling what the company needs to be worth at the next round to generate a fund-level return - then discounting that number back by the probability of getting there.

A simplified version: if a Phase 2-ready company in your therapeutic area is worth $80M pre-money, and you have a 40% probability of reaching Phase 2 from your current position, the probability-weighted value of that future checkpoint is roughly $32M.

Strip out dilution from the current round, and you start to see how the pre-money valuation gets constructed.

Here’s the most important thing to keep in mind: the investor isn't valuing what you've already built.

They're valuing the discounted probability of what you're about to become.

Now, let’s draw a baseline on where the market is today, and where it may be headed.

The short version: raising early is harder than it was a few years ago. Raising late is more lucrative than ever.

Here's the data. According to J.P. Morgan's Q4 2025 Biopharma Licensing and Venture Report, median venture round sizes by stage have moved in a clear direction since 2020:

Preclinical and Phase I rounds are getting smaller. Phase II and Phase III rounds are getting larger - significantly.

What that tells me is that investors have been quietly moving capital later in the stack, where there's actual human data to underwrite.

If you're pre-IND right now, you're competing for a smaller pool of early-stage dollars than founders were five years ago.

Carta's private markets data adds some useful context here too. The median seed pre-money across all industries hit $16M in Q1 2025, up 18% year-over-year. Biotech came in lower, at $11.7-13.4M depending on where you're based.

So what does this mean practically? Fewer early deals are getting done. But the founders who are getting them done are raising at better valuations than a year ago.

The bar is higher. But it's clearable, and the reward for clearing it is real.

(See the Bonus section for links to these reports)

The market data above gives you the big picture. Here's how valuations evolve with each stage:

Pre-seed

This is the part that’s more art than a science. Investors are betting on the team and the thesis - your scientific credibility, the IP, whether the core hypothesis holds up. Valuation is largely negotiated, anchored to what comparable early-stage companies have raised and what ownership stake makes sense for the fund.

And there’s an important nuance to keep in mind: most pre-seed biotech rounds aren't priced (in other words, the investor and founder are not setting a “pre-money” valuation).

According to Carta, SAFEs now account for over 90% of all pre-seed deals across sectors, and biotech is no exception, even though the industry historically leaned on convertible notes.

What that means practically is that you're not negotiating a pre-money valuation in the traditional sense. You're negotiating a valuation cap - the ceiling at which the SAFE converts to equity when you raise your priced round. That cap is doing the same work as a pre-money valuation, but the conversation feels different, and founders who don't understand that distinction often walk in unprepared.

In practice, biotech pre-seed caps typically land in the $6–12M range, occasionally higher for compelling platform stories from experienced teams.

Seed

This is typically where the shift to a priced round happens and where a negotiated pre-money valuation enters the picture for the first time. Now the milestone map matters.

The investor's core question is: what does this capital actually buy? What specific checkpoints does $3–6M fund - IND filing, first patient dosed, Phase 1 safety data?

Your valuation is being set by working backward from what those milestones might be worth at the next round, discounted for the probability of getting there. The ownership target math I described earlier is doing a lot of the work here too.

Series A

This is where quantitative models enter the conversation in a real way. rNPV begins to play a bigger role, because now you have actual inputs to work with. IND-enabling data, maybe early Phase 1 signals. The probability estimates become less arbitrary.

Average Series A round size in biopharma hit $75M in 2024, per DealForma, pulling back slightly to $67M in 2025 Q4 - still well above the cross-sector average.

One more data point worth flagging: the median time between Series A and Series B hit 2.8 years in Q1 2025 - the longest on record.

That means that the capital you raise at Series A needs to stretch further than it used to, and it needs to reach a meaningful de-risking event within that window. Design your milestone map accordingly.

The through-line across all of this: at every stage before Phase 2, your investor isn't funding your drug. They're funding the right to find out whether it works.

Understanding the investor logic and mechanics gives you the framework. But within any given stage, knowing what moves you up or down within that range can actually inform your strategy.

The graphic below maps the 10 specific factors that shift your valuation once a baseline has been established:

The most important thing to understand about these levers: they are signals you can build toward before you start the fundraise. In an ideal world, plan your raise 12–18 months out and sequence your work accordingly.

You can't eliminate the valuation gap, it's structural. But you can close it significantly if you plan in advance.

Step 1: Know your comps before they do

Your DCF model or peak sales projection is useful internally. But it's not what investors are benchmarking against. Before any investor conversation, find 3–5 deals in your therapeutic area and stage from the past 18–24 months. What did those companies raise, at what pre-money, at what development stage? That's the market. Start there and know it cold.

Recommended Resources: DealForma, Crunchbase Pro, BioCentury deal tracker, PitchBook (filter by stage and TA). The JPM Q4 2025 report and Carta 2025 Annual Review (both linked in the bonus section below) give you the market-level baseline.

Step 2: Map your ask to a specific de-risking milestone, not a timeframe.

“18 months of runway” is not a fundable narrative. “IND filing and first patient dosed in Phase 1” is. Investors want to know exactly what risk is being resolved with their capital. The more precisely you can define the checkpoint your funding round is designed to reach, the more credible your valuation becomes.

Ask yourself: what will be different about this company after this round closes? What will your investor be able to price at the next checkpoint that they can't price today?

Step 3: Stop defending the upside. Start defending the path.

The most common founder mistake in valuation discussions: spending 80% of the meeting defending the $500M peak sales number and 20% on probability of getting there. Investors already believe the market is real - that's why they're in the room.

What they need to believe is that you can get there. Shift your energy to probability of reaching the next checkpoint: your team's track record, your mechanism differentiation, the quality of your preclinical package. That's what moves the valuation needle.

Step 4: Understand the market cycle

The 2025 data tells a clear story: fewer deals are getting done, but the ones that do are getting done at higher valuations.

This has a practical implication: don't just prep the pitch - time the raise, at least as much as you can. The most important variable is whether your target funds have recently closed a new vehicle and are actively deploying.

These are some of the sources I’ve drawn on throughout this issue. Both are publicly available and worth bookmarking.

📄 J.P. Morgan Q4 2025 Biopharma Licensing & Venture Report A comprehensive stage-by-stage breakdown of biotech venture round sizes and pharma licensing upfronts. Updated quarterly, based on DealForma data.

📄 Carta State of Private Markets: 2025 Annual Review Cross-sector VC data on valuations, dilution, deal counts, and down round frequency by stage.

If there's one thing I want you to take away from this issue, it's the reframe:

Your investor isn't skeptical of your science. They're pricing the distance between where you are today and the next moment of proof, using a model that was built long before you walked into the room.

The founders who raise efficiently intuitively understand that conversation and come prepared to have it in the investor's language.

If you're currently in a raise, getting ready to start one, or staring at a term sheet that doesn't make sense - reply to this email and tell me where you're stuck. I’d love to point you in the right direction.

Until next week!

- Vadim

PS: When you’re ready, here’s how I can help: