Venture Capital Needed to Fill Gaps Left by Uncertain Government Funding

By Deborah Borfitz 

March 11, 2025 | Altitude Lab, the nonprofit formed by clinical-stage biotech company Recursion, recently launched a pre-seed venture fund to help 10 to 15 early-stage startups get through the current “period of uncertainty” around government funding—and other private investment groups will ideally follow suit over the short term, according to Executive Director Chandana Haque. Her focus of concern is potential loss of startups funded by Small Business Innovation Research (SBIR) grants that have a solid track record for attracting follow-on investment. 

The SBIRs are administered primarily as grants by the National Institutes of Health (NIH) and National Science Foundation as opposed to the Department of Defense (DoD), which proctors SBIRs as contracts, she says. The former two agencies, and their SBIR programs, are therefore inside the scope of the federal funding freeze, as well as the new policy imposed by the Trump administration capping indirect costs on grants at 15%.  

Award grantees as well as hopeful first-time grant recipients are feeling the impact, Haque says. Grant review panels have already been abruptly canceled, delaying access to funding and creating serious cash flow issues for biotech companies that rely on the money and may now have to scale back their development plans.  

“Every startup I’ve ever been at has been funded by SBIR grants,” says Haque, including Recursion that started with $3.1 million SBIR support and went on to raise a billion dollars in private capital. “That’s the kind of trajectory that we expect companies to be on with this initial funding.” 

Applications are already pouring in for the pre-seed funding, Haque says, including more than two dozen submissions and 50 inbound requests for information about how to apply one week after Altitude Lab made the announcement on Feb. 19. Ten to 15 SBIR-awarded biotechs will receive between $100,000 and $250,000 in funding, plus 12 months of lab and office space and exclusive mentorship with leading industry experts and access to their top-tier national funds. 

“We work with about 250 institutional funds across the country who meet every month with our founders, learning by repetition... and getting through the technical milestones,” says Haque. Altitude Lab also works with about 50 biotech executives and startup companies get paired with those experts.  

Among the caveats for receiving pre-seed venture capital are that the founders are willing to co-locate to the BioHive Hub in downtown Salt Lake City, Utah, and that their recent SBIR submission received an “impact score” of 20 or less. “The fewer the points, the better your application is,” she notes, since each one represents a concern raised by a peer reviewer. The eligibility criteria effectively put the entire candidate pool inside the top 5% of SBIR applicants. 

Only in the U.S. 

Recursion built Altitude Lab in Salt Lake City in 2020, and the company’s cofounder and CEO, Chris Gibson, Ph.D., is leading the pre-seed venture fund alongside Haque and serial entrepreneur David Bearss, Ph.D., CEO and cofounder of Halia Therapeutics. The capital will be distributed “efficiently and responsibly,” whether that takes a few weeks or several months, says Haque. “We know the urgency is now to support startups that don’t know if they’re going to be receiving the [SBIR] grants that they were expecting, so we’re trying to move as quickly as possible.” 

In the U.S., the only other options when trying to build a startup are to tap personal savings or recruit funding from investors, including family members and angel investors, she says. SBIR grants are relatively small—no more than $250,000 in phase 1 and up to $3 million in later funding stages—but enough to hire a key employee and do initial proof-of-concept studies. Overall, they account for about 3% of all federal funding through the NIH, Health and Human Services, and parts of the DoD.  

That in turn gets venture capitalists interested in the science and premise of the company, says Haque. “This is unique to the U.S.; Europe and Asia don’t have anything like it at this scale.” 

Broad Focus

The application process for an SBIR grant can take a year, but applying for Altitude Lab pre-seed venture funding is straightforward. Founders need only go to the organization’s website to apply and submit their scored SBIR review document. 

“We are focusing on life sciences fairly broadly, so we are looking at therapeutics, diagnostics, and health tech,” says Haque. Medical devices will be considered provided it’s “something particularly compelling.”  

The fundamental premise of Altitude Lab is to lower the barriers to entrepreneurship, so there is diverse representation in biotech leadership. Applicants falling into an historically under-represented category will therefore be given special consideration during the application review process, she says. This covers the gamut from women, racial minorities, and individuals in the LGBTQ community to refugees and people who have overcome a history of violence in the home. 

Since private industry can’t behave like the federal government, Haque says she is hoping that the federal funding situation will be short-lived. The SBIR program has bolstered the deep tech economy—not only life sciences, but a long list of other industries including clean energy, environmental technology, and multiple defense applications.   

Private capital investment is not going to save what the country has spent decades building, she adds. “This is something we all have to reckon with.” 

Ending on a positive note, Haque points out that the U.S. has done “phenomenally well” in terms of entrepreneurism. Anyone at all minded that way should take advantage of the opportunity Altitude Lab now has on the table, while keeping in mind that “in times of turmoil and change is when we see great innovation and great ideas come forward.”