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Fund the Inflection, Not the Round
Why the venture round is the wrong unit of account for a preclinical rare disease company, and what to plan against instead.

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AUG 2026

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The SBIR lapse is over. The funding gap is not.
Congress restored SBIR and STTR in April, but most new federal dollars for preclinical companies arrive in 2027. Here is how to plan for the gap.

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OCT 2026

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On Target | Issue [02] | D. Craig Consulting

D. CRAIG CONSULTING

On Target

Notes on building, funding, and leading biotech companies, written by an operator.

Issue [02] | October 2026 | This issue: non-dilutive capital

Six months after Congress restored the federal programs that fund early-stage research at small companies, many founders I speak with are planning as though that money is already flowing again. The law changed in April. The calendar for actual awards moves more slowly, and that difference matters most for companies that have not yet reached the clinic. This issue explains where the gap sits and how I would plan around it.

The Lead

The SBIR lapse ended in April. The funding gap it opened runs into 2027.

For many preclinical companies, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide the first non-dilutive dollars behind a program. Their statutory authority expired on September 30, 2025. During the lapse, the National Institutes of Health (NIH) terminated its open SBIR/STTR funding opportunities, and new awards stopped across federal agencies. Congress passed the Small Business Innovation and Economic Security Act in March, the House by a vote of 345 to 41, and the President signed it on April 13, 2026. The programs are now authorized through September 30, 2031, ending the longest lapse in their four-decade history.

Reauthorization restored the programs; it did not compress the review calendar. NIH reissued its solicitations with a first deadline of September 8, 2026. Based on the usual cycle of peer review and advisory council, I expect most awards from that round to arrive in 2027. For a preclinical company, that means federal support paused in October 2025 and, in most cases, resumes more than a year later.

That timing coincides with a shift in private capital. Biotech venture funding is strong in aggregate, yet about two-thirds of the rounds BioPharma Dive tracked in the first half of 2026 went to companies with a drug already in human testing. Preclinical companies therefore lost their federal bridge in the same period that venture investors moved toward clinical-stage stories.

The new law also changes the rules of the game. Firms face a cap on proposal submissions per fiscal year, which took effect on October 1, 2026; at NIH, the limit is nine. NIH no longer accepts late SBIR/STTR applications, and it now accepts Direct-to-Phase II STTR applications. Agencies may carry unspent fiscal year 2026 funds into fiscal year 2027, and agencies with more than $100 million in annual SBIR spending can offer a new Phase II award of up to $30 million over as long as 48 months.

Figure 1. Biotech venture rounds by stage, first half of 2026

Companies with a drug in human testing: about two-thirds (42 rounds)

Preclinical and platform companies: about one-third

Source: BioPharma Dive venture funding data, January through June 2026. Grade B. Counts reflect rounds BioPharma Dive tracked, which skew toward larger, disclosed financings.

The operator's move: Treat SBIR and STTR as a 2027 asset rather than a 2026 bridge. Build your runway on the assumption that federal dollars arrive no earlier than mid-2027, and spend your nine NIH submissions deliberately, favoring one well-supported application over several thin ones. Finally, pair each application with a privately funded milestone that stands on its own, so the grant accelerates the plan rather than holding it up.

On the Radar

Fewer rounds, larger checks

BioCentury counted 366 biotech venture financings with disclosed amounts in the first half of 2026, compared with 371 a year earlier and 663 at the 2021 peak. The median round rose to $23.7 million, close to the 2021 record.

Why it matters: a smaller group of investors is writing larger checks, so early-stage raises benefit from a short, well-qualified target list built around a lead.

FDA approvals are running well ahead of last year

The US Food and Drug Administration (FDA) approved 44 novel drugs from January through September 2026, compared with 32 in the same period of 2025. September brought first-ever approved therapies for several ultra-rare conditions, including Alexander disease and Sanfilippo syndrome type A.

Why it matters: each small-population approval adds precedent that rare disease companies can cite when investors ask whether a path to approval exists.

Venture is concentrating in the largest hubs

Savills reports that San Diego life sciences companies raised $1.4 billion through the third quarter, down 34.1% year over year and the lowest total for that period since 2022. Raleigh-Durham raised $184.7 million, down 84%.

Why it matters: companies outside Boston and the Bay Area should plan for longer raises and give strategic partners, foundations, and state programs a larger role in the capital plan.

From the Desk

Coming soon: a D. Craig Consulting thought paper on the SBIR/STTR lapse and what it means for preclinical biotech funding, with the full timeline and supporting charts. A white paper comparing accelerated and traditional development pathways follows.

If you missed it, my report Rare Disease Drugs Are Financed One Inflection Point at a Time maps nine inflection points from development candidate to confirmatory readout and the capital needed to reach each one. Read the report.

The New Rules of Rare Disease is in production. Proceeds from both books support Duchenne patient organizations.

Read The New Rules of Biotech

About the author

David Craig has spent about 30 years in biopharma operations at Amgen, Gilead, and Portola Pharmaceuticals and is the author of The New Rules of Biotech. He writes through D. Craig Consulting LLC.

Interest disclosure: David is also Chief Executive Officer of Sarcomatrix Therapeutics, a preclinical rare neuromuscular disease company, and holds equity in it. As a small business, Sarcomatrix is eligible for the federal programs discussed in this issue. This newsletter is published by D. Craig Consulting, is for general information, and is neither investment advice nor an offer of any security.

Note on sources

Grade A, primary: Small Business Innovation and Economic Security Act of 2026 (S. 3971), as summarized in Crowell & Moring and International Economic Development Council (IEDC) client updates (April 2026). Grade B, reputable secondary: BioPharma Dive and BioCentury first-half 2026 venture analyses (July 2026); RTTNews FDA approval tally (October 2026); Savills Q3 2026 San Diego and Raleigh-Durham life sciences market reports; NIH solicitation details and proposal caps as reported by grant advisory firms. Grade C, author estimate: the expected 2027 timing of awards from the September 2026 NIH round reflects the usual review and council cycle, not an agency announcement.

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Newsletters

Fund the Inflection, Not the RoundWhy the venture round is the wrong unit of account for a preclinical rare disease company, and what to plan against instead.

The SBIR lapse is over. The funding gap is not.Congress restored SBIR and STTR in April, but most new federal dollars for preclinical companies arrive in 2027. Here is how to plan for the gap.

Subscribe to On Target

Fund the Inflection, Not the Round
Why the venture round is the wrong unit of account for a preclinical rare disease company, and what to plan against instead.

The SBIR lapse is over. The funding gap is not.
Congress restored SBIR and STTR in April, but most new federal dollars for preclinical companies arrive in 2027. Here is how to plan for the gap.