The Trump Administration’s proposed federal budget for fiscal year 2026 reduces funding to the National Institutes of Health (NIH), the world’s largest public funder of biotech research, by $17.97 billion, a reduction of roughly 37%. This follows the 15% cap it placed on indirect costs for NIH grants that traditionally ranged between 30% and 70%.
The courts are adjudicating the various legal challenges to these actions, but one thing is clear: the post-war apparatus for funding biotech innovation has been dismantled, at least for the foreseeable future.
Fortunately, venture philanthropy has proven highly effective in the discovery and commercialization of biotech innovations. As the result of 2015 guidance by the Internal Revenue Service regarding the Tax Reform Act of 1969, private and family foundations have accelerated its use to advance disease prevention and treatment.
Like grants, venture philanthropy is used by foundations in furtherance of their charitable missions. Unlike grants, however, it is deployed with the expectation of some financial return. Such returns can be recycled for other charitable purposes, which enables foundations to compound the benefits of their financial resources.
Venture philanthropy is an effective catalyst for biotech innovation because it accounts for its unique complexities. For starters, it is tolerant of the many years often required to achieve clinical trials and market approval. The exit horizon for investors in a biotech startup now averages upwards of 20 years, more than double that of the average venture capital investment.
Venture philanthropy is tolerant because it is less expensive and more flexible than other forms of capital. Foundations generally accept below-market returns in exchange for the desired social impact, so they are amenable to lower equity stakes and less aggressive terms. They can also make investments in the form of low-interest loans, equity investments or guarantees.
This explains why venture philanthropy is also geo-agnostic. It is used to source breakthroughs at mid-continent institutions that would otherwise be cost-prohibitive for investors in San Francisco and Boston – thereby overcoming the gridlock that perennially channels two-thirds of the venture capital for all biotech startups to those in nearby California, Massachusetts and New York.
Unlike public and philanthropic grants, venture philanthropy is highly disciplined in supporting biotech research and translation. It allows funders to bridge the ever-widening gulf between research lab and venture-funded startup by supporting the work required to ready biotech innovations for downstream investors.
The discipline of venture philanthropy is essential because today’s biotech research is far more complex than that of previous generations. A breakthrough in cell and gene therapy or neuroscience requires the rigor and scale of a commercial lab to wring out investor risk. This is not an area where NIH-funded academic labs, which emphasize discovery over translation, generally excel.
The sharp reduction in NIH funding coincides with China’s emergence as a rival for global leadership in biotech innovation. Its share of molecules licensed to U.S. pharmaceutical companies jumped from 0% in 2019 to 31% in 2024 31% in 2024. The country’s rapid ascent reflects President Xi Jinping’s declaration that “the biopharmaceutical industry is a strategic emerging sector that relates to national economic development and public welfare, as well as national security.”
America’s biotech industry is at a critical juncture. Our decadeslong supremacy is imperiled by a new funding model and a hard-charging, deep-pocketed competitor. The good news is that many of the world’s preeminent researchers continue to work here, and smart money typically finds great science.
Venture philanthropy has proven to be smart money. It was used by the Bill & Melinda Gates Foundation to develop mRNA vaccines for rabies and tuberculosis, as well as the Cystic Fibrosis Foundation to incubate transformative therapies for cystic fibrosis patients, including CFTR modulator drugs. More recently, it served as seed capital for large-scale, multi-disciplinary projects ranging from Arena BioWorks to Convergence. The temptation is to view venture philanthropy as an offset to the reduction in NIH funding, but its ability to do what other forms of capital cannot to discover and commercialize biotech research is exponentially more valuable. Venture philanthropy is critical to America’s standing as the world’s biotech leader – and that was true before the public funding cuts.
Lydia McClure, PhD is chief executive officer of Research Bridge Partners.