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During late 2024 and early 2025, after assembling a detailed questionnaire, �鶹�� BioCapital reached out to two dozen venture capital (VC) funds across Europe and North America to learn more about how they operate.

On a mission to uncover what distinguishes the most successful VC funds in life science, �鶹�� BioCapital wanted to discover if these funds tend to stick closely to an effective model, as happens in private equity. And if ‘best practice’ does exist in the world of life science VC funds, what does it look like?

What they unearthed did not lead to a single conclusion, but a series of findings that painted a more nuanced picture – one that suggested even leading figures in the world of VC funds might benefit from sharing their insights.

Learning from the best

A principal finding was that life science focused VC funds could improve their performance by adopting a more structured and objective approach to assessing their portfolio companies. While some top funds have already started assessing them in a highly rigorous manner, others have yet to do so.

Secondly, VC funds could maximise their portfolio companies’ chances of success by employing a complete team of players to help them – who are experts not only in science and finance, but also in other parts of the drug development value chain, such as regulatory affairs and clinical development. Yet few funds operate like this, according to the research.

Thirdly, when it comes to discovering investment opportunities, life science VC funds typically rely heavily on their personal networks – meaning they might be missing out on good opportunities and falling into ‘groupthink’, because their radars are not scanning widely enough.

The findings have been gathered in a new white paper from �鶹�� BioCapital – called Strategies for Success: What makes a great life science venture capital fund? – based on anonymised interviews with executives at 24 European and North American VC firms.

Leading to better decisions

Christian Elling, Managing Partner of �鶹�� BioCapital, said: “We found that few VC funds are really elevating how they score individual companies in their portfolios.

“They tend to assess each company on its own merit, rather than evaluating all the companies in their portfolio on a like-for-like basis.

“Why does this matter? Because if you are not running the same rule over your companies, then it diminishes your ability to identify the risks in your portfolio, which can impact returns.”

Elling accepted that comparing early-stage biotech companies, which typically do not generate any revenue and develop a wide range of technologies in a host of different disease areas, was not an easy task. Some might say it is like comparing apples to oranges.

But adding “discipline and objectivity” to portfolio company evaluation “means you can get more clarity on your risk – and that might lead to better decisions and outcomes in the long run”, Elling argued.

“It’s like seeing your companies through a polarising filter,” he said.

Associate Jan-Erik Messling, who conducted the interviews, said VC funds which used a more structured evaluation approach – including quantitative assessment tools that went beyond just looking at company milestones – appeared to be more successful at raising bigger funds.

Elling emphasised that investment decisions, and decisions on whether to pull the plug, would always come down to “a judgment call” based on the wisdom of highly experienced fund managers.

A more structured portfolio evaluation approach, he said, “will never be an algorithm, where we just put some numbers into a calculator and out pops the result”.

But an algorithmic approach could “support their judgment”, he reasoned, “and that can help VC funds better select potential winners.”

Covering the drug development chain

A second significant finding of the research was that leading VC funds tend to employ specialists who “can cover the entire drug development chain from discovery all the way to commercialisation,” said Messling.

“Early-stage companies are obviously very small,” Messling explained. “But drug development is very complex, and they cannot have internal expertise on all aspects of drug development. So having the right specialists at a VC fund level, who can give ad hoc support to portfolio companies, is something that we think can add a lot of value.”

Although leading VC funds tend to have people who provide hands-on specialist support to companies across their whole portfolio, Messling said a more typical model is for VC managers to be “generalists” who help a smaller number of companies from start to finish.

He added: “A lot of individuals at VC funds either have a scientific or financial background, but really strong subject expertise in other areas – such as regulatory affairs, clinical development, and M&A – is lacking in some VC funds.”

Personal networks over screening tools

A third big finding? “More than 90% of VC funds said they sourced deal opportunities primarily through their personal networks, rather than other ways like technology transfer offices or having their own incubators or discovery engines,” Messling said. Few used systematic screening tools either.

Given that life science VC investing is a small world, this is perhaps unsurprising. But Messling said a “network-heavy” approach, in which deal opportunities tend to come via personal relationships and recommendations, meant VC funds risked herding towards the same targets – and so missing better possibilities elsewhere. Other findings were that many VC funds considered that investing in next-generation medical therapies meant they sufficiently ‘ticked the box’ on environmental, social and governance (ESG) issues, so gave limited thought to how a more proactive approach to ESG could result in additional value, and that few had structured career development programmes.

Are these findings – mostly characterised by a lack of formalised, structured approaches – indicative of a certain culture within life science VC investing, where intuition is prized over process, flair over formula, and which positively celebrates the maverick?

“I think that’s accurate,” said Elling.

But he stressed: “We are not on a mission to institutionalise our industry at all. We are not here to create bureaucracy. You can be a maverick all day long. But maybe adding some tools to your toolbox, could make you even better.”

�鶹�� BioCapital’s undertook the project mainly to discover if other VC funds were using “sophisticated approaches” – so they could adopt these “pointy tools” themselves, said Elling. The real surprise, he concluded, was that very few were. “VC funds might do well to reflect on that,” he said.