The biotech funding ecosystem is complex, with multiple players working together to advance breakthrough medicines. At the heart of this system are Limited Partners (LPs)—the rarely discussed but crucial players who ignite the funding flywheel that drives biotech innovation.

The role of LPs in biotech

LPs are the foundation of the biotech funding pyramid. They provide capital to venture investors and other financial institutions that in turn fund promising biotechs. This initial capital allocation starts a powerful cycle: LPs fund VCs, VCs invest in biotechs, some of these biotechs generate financial returns, these returns go back to LPs, and LPs invest more dollars into new funds. In the end, biotech investments accelerate.

To better understand this critical yet mysterious part of the ecosystem, we’ve partnered with the Biotech2050 podcast to publish an illuminating series of interviews with LPs across the investment landscape. We will speak with family offices, fund of funds, institutional investors, and charitable foundations to uncover their unique perspectives on biotech investing. This blog is a teaser of the LP discussion we will share with our community. If you’re an LP and interested in investing in biotech, connect with us at [email protected] to learn more.

Key insights from biotech LPs

Mission matters

Modern LPs seek more than just financial returns. They want their capital to drive meaningful change. We’re seeing a growing emphasis on aligning investments with a mission—whether that’s advancing rare disease treatments, improving mental health solutions, or developing innovative cancer therapies, to name a few.

The search for alpha

In today’s private markets, traditional sectors (such as B2B SaaS) are seeing compressed returns. Tech is awash with capital competing for deals, higher valuations, and limited exits (particularly over the last two years). Therefore, LPs are increasingly looking to new sectors for returns. Biotech promises to be one of those areas of focus.

Differentiation drives returns

One clear message emerged from our interviews with LPs: me-too strategies rarely succeed. The market already has plenty of ‘traditional’ investment theses, and LPs aren’t interested in offerings that have minimal to no differentiation. Instead, LPs are increasingly drawn to funds with novel and truly differentiated approaches. These could be funds with novel technology platforms, unique deal structures, or new perspectives on a legacy industry.

The journey

My favorite quote from the series so far was from a family office with a connection to rare disease: they advise fellow LPs to just get started. Many LPs are intrigued by biotech’s potential but often wait on the sidelines. However, as this experienced LP told us, they learn about new sectors by participating. This pragmatic advice resonates—comfort with new asset classes, like biotech investing, comes through partnering with original thinkers and thoughtful deployment of capital. There are a few ways you get to that point, including: 

• Seeking input from members of the ecosystem in the flow of great funds, biotech startups, and capital
• Finding LPs who resonate with your personal mission
• Deciding, for your assets under management (AUM), what is an appropriate pool of capital to spearhead a new growth area

Building the next generation of breakthrough medicines requires participation from all parts of the funding ecosystem. LPs play a crucial role in this mission, and understanding their perspective is vital for anyone involved in biotech venture capital.

The biotech LP landscape is evolving rapidly. For those interested in exploring biotech fund investments, we’ll be publishing more detailed insights from our LP interview series with Biotech2050. Connect with us at [email protected] to learn more.