Biotech Funding Terms Glossary (VC → IPO → M&A)
A plain-English glossary of common biotech/biopharma financing terms — written for founders, investors, and anyone reading deal announcements.
Tip: If you’re new to biotech dealflow, learn the “money math” terms first (pre/post, dilution, option pool), then the structure terms (tranched, milestones, CVR), then the public-market mechanics (ATM, follow-on, PIPE).
Core VC money math
Pre-money valuation
Company value before new money comes in. Used to calculate price per share and dilution.
Post-money valuation
Pre-money + new money invested. If you raise $50M on a $200M pre, post is $250M.
Dilution
The percentage ownership existing shareholders give up when new shares are issued. It’s not “bad” — it’s the cost of capital.
Option pool / ESOP
Shares reserved for employees. Investors often require a “pool top-up” at a new round (which increases dilution to existing holders).
Price per share
Implied share price set by the financing. Determines how many new shares are issued for the amount raised.
Fully diluted (FD) shares
Total shares assuming all options/warrants/convertibles are exercised/converted. “FD % ownership” is what most investors care about.
Runway
How long the company can operate at current burn rate before running out of cash (often stated in months).
Burn rate
Net cash spent per month/quarter. In biotech, clinical trials and manufacturing scale-up usually drive burn.
Round types in biotech
Seed
Early capital to form the company and generate initial data (target validation, lead discovery, IND planning).
Series A / B / C
Staged VC rounds. In biotech: A often funds IND + Phase 1; B funds Phase 1/2; C funds Phase 2/3 or multiple programs (very general rule).
Extension / “A-1”, “B2”, etc.
An add-on to an existing round, sometimes at the same price, sometimes at a step-up.
Bridge round
Short-term financing meant to reach a specific milestone (e.g., data readout) or an IPO/M&A process.
Crossover round
Private round that includes public-market investors (often ahead of an IPO). Signals IPO intent and helps anchor valuation.
Venture debt
Debt financing for VC-backed companies (often with warrants). Extends runway but adds repayment obligations.
Term sheet mechanics
Preferred vs common stock
Preferred (investors) usually has extra rights (liquidation preference, anti-dilution, voting). Common (founders/employees) is junior in payouts.
Liquidation preference (liq pref)
Investor gets paid back first (often 1x of invested capital) before common receives proceeds in an exit.
Participating preferred
Investor gets their preference and then shares in remaining proceeds. Less common in top-tier biotech VC but can appear in tougher markets.
Anti-dilution (broad-based weighted average)
Protects investors if a future round is priced below the current round (“down round”). Weighted-average is the more standard/less punitive form.
Pay-to-play
Requires existing investors to participate in a financing to keep certain rights (or avoid penalties). Shows up in stressed situations.
Pro-rata rights
Right to maintain ownership by investing in future rounds. Important when a company breaks out and rounds are oversubscribed.
Tranched financing
Investment released in stages based on milestones (e.g., IND filing, Phase 1 data). Lowers risk for investors; can constrain company flexibility.
Syndicate
Group of investors in a round. “Lead investor” sets terms; “followers” join on the same terms.
Board seat / observer
A seat is voting governance; an observer attends but typically doesn’t vote. Often tied to ownership/round leadership.
Deal announcement language (how to read it)
“Up to” / total potential value
Headline value including milestones. Actual cash paid depends on success (clinical, regulatory, commercial).
Upfront
Guaranteed payment at signing/close. Most useful number for comparing deals.
Milestones
Contingent payments tied to development/regulatory/commercial outcomes.
Royalties
Percentage of sales paid to a licensor (common in licensing/asset deals).
Equity value vs enterprise value (EV)
Equity value is value paid for shares. EV adjusts for net debt (and sometimes other items). Press releases often cite equity value.
Public market financing terms
IPO
Initial public offering. Biotech IPOs often price on catalysts + crossover support, and may include insider participation.
Follow-on offering
A public company selling new shares after IPO (often after a catalyst or when the window opens).
ATM (at-the-market)
Program to sell shares gradually into the market. Useful for opportunistic fundraising without a single big deal.
PIPE
Private investment in public equity. Often used when the public market window is weak; can be dilutive and may include discounts.
Warrants
Option-like securities that let holders buy shares later at a set price. Common in PIPEs, venture debt, and stressed financings.
Biotech M&A terms
Tender offer
Acquirer offers to buy shares directly from shareholders at a set price (common in public takeouts).
CVR (contingent value right)
A right to receive additional payout if milestones are met post-acquisition. Used to bridge valuation gaps.
Earnout
Additional payment based on performance (e.g., revenue targets). Less common in pure biotech than in services/software.
Break fee (termination fee)
Fee paid if the deal is terminated under specific conditions (e.g., superior proposal). Signals deal certainty dynamics.
Quick FAQs
What’s the difference between pre-money and post-money?
Pre-money is valuation before investment; post-money is after. Post = pre + amount raised.
Why do biotech deals use “up to” numbers?
To share risk: upfront is guaranteed, while milestones pay out only if the science succeeds.
What is a CVR and why do acquirers use it?
It’s a contingent payout that protects the buyer while letting sellers participate if key milestones hit.
Want more?
BioBucks publishes weekly biotech dealflow + trackers (M&A, funding, BD). Subscribe for the latest.