Why venture debt belongs in the late-stage therapeutics capital stack
Late-stage biotech runs on capital, and the default is to fund all of it with equity. We think that leaves substantial value on the table for existing investor syndicates. Used well, debt complements equity: it gives the company a stronger balance sheet, carries runway past the readout, and does both with far less dilution.
The price of relying on equity alone
A late-stage biotech typically raises its largest cheque at the worst possible time: Phase 3 burn is at its peak, the pivotal readout is still a year away, and the outcome that defines the valuation has not yet arrived. The company needs cash immediately, so it raises equity at today’s price, which is depressed because the market is pricing in the absence of data.
That is the core issue. Equity raised ahead of a binary readout effectively locks in dilution before the re-rating occurs. If the data is positive, a large part of the upside goes to the investors who entered pre-data, rather than to the founders and long-term shareholders who carried the risk through the earlier clinical development stages. The equity still funds the company, but it does so at an inefficient point in the value cycle, with the cost reflected directly in dilution.
The numbers: Inventiva
Inventiva, the French-listed MASH biotech behind lanifibranor, is a good illustration of how debt can complement equity. Ahead of its pivotal NATiV3 Phase 3 readout expected in Q426, the company needed to secure sufficient capital to reach this major value inflection point. At the time, Inventiva traded at ~€4.43 per share, implying a market capitalisation of ~€926m, having already raised ~€789m of equity throughout its development.
Had the entire funding requirement been met through equity, the dilution would have been significant. A €150m raise at €4.43 would require ~34m new shares, equivalent to ~16% dilution, all priced before the pivotal data.
To avoid that, we provided, alongside BlackRock, a facility of up to €150m as part of the broader financing. The objective was not to replace equity, but to reduce dilution ahead of the catalyst while ensuring the company remained funded through the readout. That is the core use case for our capital: companies should have sufficient cash at the point of the data to preserve strategic flexibility. If the readout is positive, management can raise equity post-catalyst at a re-rated valuation. If the data disappoints, the company has the runway to stabilise and restructure from a position of control rather than under immediate financing pressure.
This is where venture debt can be most impactful in biotech. It allows companies to fund through a major clinical milestone without relying solely on equity capital at the point where dilution is most expensive. Rather than selling a larger portion of the company ahead of the readout, management can retain greater exposure to the value created if the catalyst is successful.
Debt is also faster
Speed is often underappreciated in how it shapes financing outcomes. A marketed equity raise takes time: bookbuilding, investor meetings, syndicate formation, filings, blackout windows and, for European issuers, often a shareholder vote. The process can easily run into months, and it is exposed to market conditions throughout.
Our execution timeline at Claret is materially shorter. From signed term sheet to committed capital typically takes eight weeks, with funding available at close and additional capacity structured in tranches linked to agreed milestones. That speed matters when a company is working towards a fixed clinical readout timetable.
It changes the funding dynamic. Instead of being forced into an equity process that may drift into weaker market conditions, management can secure certainty early and preserve optionality through the catalyst. In practice, it reduces the risk of raising at the wrong point in the valuation cycle, where the cheapest equity is almost always the equity raised after positive data, not before it.
What shareholders keep
Underneath all of this, the point is simple: late-stage financing should get the company through its inflection with as much value as possible still held by the people who backed it.
Debt does that. It funds the runway without re-pricing the equity, so the existing register holds its share of the company through the readout. When the data lands and the stock re-rates, that gain belongs to them, not to a pre-data buyer. Founders keep more of what they built, long-term holders keep the return they waited for, and the company reaches its catalyst with a stronger balance sheet and a cleaner cap table.
A part of the stack, not a replacement
None of this is an argument against equity. Equity funds the commercial build, carries the binary risk a lender should never price, and anchors the long-term register. The point is that the capital stack should be designed, not defaulted into.
We have made that case across markets and indications. In Abivax, the Paris-listed biotech of ABX-464 in ulcerative colitis, with around €437m of equity already raised, we committed €25m within a larger facility to help fund its pivotal programme. In Cinclus, the Stockholm-listed P-CAB biotech running linaprazan glurate through three concurrent Phase 3 GERD studies, we committed €28m. In Inventiva, a share of a facility of up to €150m. Three companies, three countries, three diseases, and the same outcome: a facility sized to keep the business funded through its readout and giving management the time to act on its own terms once the data lands.
The bottom line
The instinct is to treat equity as the only real source of growth capital. For a company heading into a binary readout, the better goal is to arrive with the strongest balance sheet, runway past the data, and dilution kept low and the way to do all three is to bridge with debt rather than sell the upside early.
Claret Capital Partners provides structured debt and growth capital to high-growth and late-stage life sciences and technology companies across Europe. This perspective reflects the firm’s view and is provided for discussion purposes only; it is not investment advice or an offer of any security.
