7 min reading How to Diligence a Therapeutic Startup
“In therapeutic investing, the science must be right, but the strategy must be smarter.”
Diligencing a therapeutic startup is unlike any other form of early-stage investing. It requires balancing scientific rigor with business realism. From molecule to market, investors must evaluate not just whether the science works, but also whether the pathway to revenue and, eventually, to exit is both capital-efficient and strategically defensible.
In this article, we distill insights from Startup Funding Espresso episodes on diligence, biotech assessment, and founder fit to create a structured playbook for investors, founders, and diligence teams navigating therapeutic innovation.
The Purpose of Diligence
Therapeutic startups operate at the intersection of science, regulation, and capital markets. The goal of diligence is to validate alignment across three domains:
- Technical feasibility — Does the underlying science or technology platform hold up under scrutiny?
- Regulatory viability — Is there a clear pathway through the FDA, EMA, or equivalent agencies?
- Commercial potential — Is the market large enough, accessible enough, and ready enough to support sustained adoption?
The episode “Setting up Due Diligence” underscores that diligence is not a checklist but a risk-reduction process. Each layer, technical, market, financial, and team, reveals not only what’s known but also where uncertainty resides.
Key Pillars of Therapeutic Diligence
Across episodes like “What Investors Look for in a Biotech Startup”, “Core Skills for Biotech Drug Development”, and “Best Practices for Therapeutic Startup Fundraising,” five diligence pillars consistently emerge:
a. Scientific Validity
Evaluate the mechanism of action and supporting pre-clinical data. Look for peer-reviewed validation or collaborations with credible institutions. Avoid overreliance on early, non-replicated studies.
b. Regulatory Readiness
Determine if the company understands its regulatory classification (drug, biologic, device, or combination product). The episode “Key Documents for Your Due Diligence Box” reminds investors to confirm the presence of pre-IND or pre-submission feedback and a mapped timeline to key milestones (IND, Phase I/II/III, etc.).
c. Intellectual Property
Strong IP defines competitive durability. Diligence teams should verify patent ownership, freedom-to-operate analyses, and upcoming expirations. The episode “Red Flags in Due Diligence” lists weak patent coverage and licensing ambiguity as common deal-killers.
d. Market and Reimbursement
The episode “How to Diligence the Market” highlights the importance of mapping addressable markets, reimbursement codes, and pricing elasticity early. In therapeutics, the buyer is often not the user; understanding payer dynamics is as critical as clinical efficacy.
e. Team and Execution
From “How to Diligence the Team” and “How Much Diligence to Run on a Founder,” we learn that successful therapeutic founders combine scientific depth with regulatory and commercial literacy. Look for balanced teams, scientific founders complemented by business operators and regulatory veterans.
Evaluating the Science: From Discovery to Translation
Scientific diligence is both art and analytics. The episodes “Technical Due Diligence” and “Performing Due Diligence Like a VC” emphasize reviewing:
- Preclinical data integrity (sample sizes, control design, statistical significance).
- Translational relevance (animal model to human trial correlation).
- Scalability of the therapeutic platform (manufacturing, formulation, delivery).
- Replicability and documentation quality.
The diligence process should involve external subject-matter experts who can assess biological plausibility and experimental design. Investors often underestimate how manufacturing complexity and stability testing can become multi-million-dollar bottlenecks post-Series A.
Regulatory Diligence: Navigating the FDA Maze
Episodes like “Due Diligence: The Thorough Approach” and “Signing NDAs in Due Diligence” note that regulatory diligence is not just about confidentiality; it’s about clarity. Investors should verify:
- Has the company engaged with the FDA through pre-IND or Q-submission meetings?
- Does the clinical plan align with regulatory precedent?
- Are timelines and budgets realistic given the required studies?
For devices and diagnostics, the 510(k), De Novo, and PMA pathways drastically change time-to-market and capital requirements. For drugs, investors should validate the clinical endpoints that regulators will recognize and the CMC (Chemistry, Manufacturing & Controls) readiness.
Market Validation and Adoption Risk
The episodes “How to Perform Marketing Due Diligence” and “The Role of Social Media in Due Diligence” remind us that even brilliant therapies fail if they can’t cross the commercial chasm. Critical diligence questions include:
- Who pays for this therapy—patients, insurers, or hospitals?
- What’s the comparative cost versus the current standard of care?
- How do KOLs (Key Opinion Leaders) view the therapeutic value?
Savvy investors go beyond market sizing they look for evidence of early traction, like investigator interest, LOIs from clinics, or grants validating unmet needs.
Financial and Risk Diligence
In “Financials, Team and Domain Diligence” and “Going Through Due Diligence,” Hall T. Martin highlights the need to align scientific milestones with capital tranches. Key insights include:
- Link fundraising to de-risking events (e.g., IND submission, Phase I completion).
- Assess capital efficiency: how much per data point?
- Model downside scenarios: what happens if the lead candidate fails?
Therapeutic startups should demonstrate clear cash-to-value conversion, showing how each dollar accelerates the next stage of validation.
Qualitative and Quantitative Diligence
From “The Quantitative and Qualitative Side of Due Diligence,” effective investors integrate metrics and intuition. Quantitatively, they evaluate market size, runway, and clinical timelines. Qualitatively, they examine founder motivation, transparency, and resilience.
The best diligence blends data with discernment; a founder’s honesty in disclosing failed experiments often signals stronger integrity than perfect slides.
Common Red Flags
Episodes like “Red Flags in Due Diligence” and “What Isn’t Being Said in Due Diligence” reveal recurring warning signs:
- Overstated preclinical results or missing negative data.
- Lack of clarity on IP ownership or licensing.
- Unrealistic regulatory timelines.
- Founders are resistant to third-party validation.
- Weak capitalization structure or unrecorded convertible debt.
Any one of these can indicate a lack of maturity in governance or readiness for institutional investment.
Building the Due Diligence Box
The “Key Documents for Your Due Diligence Box” episode lists must-have files:
- Executive summary and pitch deck
- Scientific white papers
- IP portfolio summary
- Regulatory correspondence
- Financial model and cap table
- Team bios and advisory board profiles
For therapeutics, include clinical protocol summaries and manufacturing validation reports. Organizing these early signals professionalism and preparedness.
Performing Diligence Like a VC
In “Performing Due Diligence Like a VC,” the guidance is clear: diligence should be continuous, not episodic. Build a scoring system that rates:
| Dimension | Weight | Example Criteria |
| Technology | 25% | Novelty, defensibility, scalability |
| IP & Regulatory | 20% | Patent quality, pathway clarity |
| Market | 20% | TAM, reimbursement feasibility |
| Team | 20% | Execution capability |
| Financial | 15% | Capital efficiency, exit potential |
This structured scoring ensures consistent evaluation across diverse biotech deals.
Building and scaling a deeptech startup requires more than breakthrough science; it demands clarity, discipline, and a strategic understanding of how technology becomes a business. By approaching diligence with a structured framework, investors can separate promise from potential, risk from readiness, and science from genuine commercial opportunity.
The startups that ultimately succeed are those that pair innovation with execution. And the investors who win in this space are the ones who know how to look beyond the pitch and into the mechanics that make a company truly defensible.
Deeptech isn’t simple, but with the right approach, it becomes far more predictable.
Read More from TEN Capital Education here.
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group
