Beyond the Hype Cycle: Breakout Ventures' Nima Ronaghi on What Actually Drives Biotech Value

A wide-ranging conversation with Nima Ronaghi, Principal at Breakout Ventures. We cover AI hype, platform business models, funding discipline, China's regulatory advantage, and why boring improvements drive real value.

The biotech funding landscape has never been more schizophrenic.

On one hand, Chai Discovery hits a $550 million pre-money valuation, riding the AI wave with Menlo Ventures leading the charge. On the other, solid companies with sound science can't scrape together $5 million to keep the lights on.

"It's a tale of two worlds," says Nima Ronaghi, Principal at Breakout Ventures, speaking from his unique vantage point spanning both therapeutic and industrial biotech investments.

As someone whose background bridges organic chemistry, catalysis, and sustainability, Ronaghi brings an unusual perspective to biotech investing. At Breakout Ventures - which positions itself as "the home for creative bioscience entrepreneurs" - he's seen the full spectrum of biotech endeavors, from advanced therapeutic modalities to synthetic biology platforms aimed at replacing petroleum-based materials.

What emerges from our conversation is a portrait of an industry simultaneously racing toward the future while struggling with fundamental questions about value creation, realistic timelines, and what actually drives success versus what makes headlines.

The Funding Paradox: Discipline Returns, But Unevenly

The shift from 2021's frothy valuations to today's environment has forced a reckoning. "Pre-2021, it was: move very quickly, rich valuations," Ronaghi recalls. "You could always raise more money. There was always more money out there."

The strategy then was almost formulaic: raise at a $20 million pre-money, take $10 million, hit your milestone, then raise at $40-50 million pre-money - rinse and repeat.

Some founders opted for monster rounds, others for sequential smaller raises. The key was that both strategies worked - not anymore.

Fast forward to today, and Ronaghi sees a silver lining in the downturn: "Everyone needs to be very disciplined on how much they're raising and what they're raising for. 2020 and 2021 were not like that. Everyone was just raising money because they could, and cash was virtually free."

This return to fundamentals means companies must answer hard questions:

What science milestone do you really need to hit?

What's the minimum capital required to reach the next value inflection point?

But this discipline isn't uniformly distributed. While some companies command astronomical valuations based on AI narratives, others with equally valid approaches struggle to find any capital at all.

AI Is A Force Multiplier, Not A Replacement

Perhaps no topic in biotech generates more heat than artificial intelligence's role in drug discovery. Ronaghi holds nothing back here:

"I'm quite bearish on AI fully replacing wet lab work," he states flatly. "I think there's some really great companies out there... but this idea of creating synthetic data* I don’t think we’re going to get there in the next five years, maybe even ten years." 

His framework for evaluating AI applications is refreshingly practical:

• Are you using it for synthetic data? If yes, is it better, cheaper, or more efficient than wet lab data?

• If you're using it to analyze wet lab data, what can AI do that traditional computational methods can't?

• Is there something truly unique about your model and its outcomes?

"I think a lot of people are applying machine learning in places that don't need machine learning," he observes.

Where Ronaghi does see promise is in manufacturing and process optimization - areas with clearer endpoints and physics-based modeling. "For predictive maintenance, that side of things, I’m super bullish on AI’s potential. On replacing the wet lab entirely, the data side, I’m very bearish."

The Platform Trap: Why Business Models Still Elude Most

The platform versus asset debate in biotech is perennial, but Ronaghi brings nuance to what's often a binary discussion. He identifies three distinct phenotypes:

1. Pure platforms with no asset development (services/partnership model)

2. Platform-plus-asset companies that develop drugs to validate their platform

3. Pure asset companies with no platform claims

"Industry still overindexes on platform hype," Ronaghi argues, noting that companies have raised massive rounds "without clear business models or paths."

The uncomfortable truth: "All techbio companies eventually need to become biotech companies." Ronaghi continues, “Techbio companies begin with platform technologies, data, or automation as their edge. But to create lasting value, they almost always need to transition into biotech — building products (i.e., therapeutics, diagnostics, etc) that advance through clinical and regulatory validation, rather than staying only as enabling tools.”

The only exceptions he can point to are Adimab and Alloy Therapeutics - both Errik Anderson companies - that have made the pure platform model work by driving revenue.

Even seemingly successful platform companies eventually pivot. Exscientia rode high on AI-platform promises during COVID and went public with that same narrative - but then pivoted to developing their own assets (and has since combined with Recursion). "Everyone at some point has to find a way to build value," Ronaghi observes.

His investment thesis at Breakout focuses on the middle category - companies with platforms that generate assets. But he's skeptical of pure platform plays: "I just haven't seen many of these business models that scale revenue fast enough to be venture backable.”

When More Capital Means Less Progress

One of Ronaghi's spiciest takes challenges Silicon Valley orthodoxy: "I don't necessarily think more capital means faster progress. I'd argue, honestly, sometimes the opposite."

Oversized rounds, he argues, create their own problems:

• Inefficiency and slower decision-making

• Pressure to spend cash just because it's available

• Bloated pipelines that are hard to execute

• Unrealistic timelines for inherently time-bound biological processes

"Whether you have $10 million or you have $100 million or $500 million, there's only so much that you can parallelize," he explains. "It ends up not actually being much faster."

This is particularly problematic when companies raise monster rounds at peak valuations, then face downward pressure when markets correct. They're stuck - unable to raise down rounds, unable to IPO below their last valuation, essentially frozen in place.

Industrial Biotech's Make-or-Break Moment

While therapeutic biotech gets most of the attention (and is, ostensibly, the focus of this newsletter), Ronaghi argues that industrial biotech is at a critical juncture that could determine the entire sector's future.

"There are probably three to five industrial biotech companies out there with both the maturity and momentum to convert into meaningful wins in the near future. And I do think that we need at least one or two of them to win or else we're in trouble."

He names names: Solugen, Zymochem (a Breakout portfolio company), and Debut.

After high-profile failures like Zymergen and struggles at companies like Amyris and Ginkgo Bioworks, the sector desperately needs success stories.

The challenge in industrial biotech is mainly commercial, less so regulatory - as Ronaghi explains: "You can do everything right and the technology can work. You can make the material, but then there's this commercial risk that exists on the demand side. Someone has to actually buy it, and there's no promise that they're going to buy the thing."

This fundamental difference in risk profile explains why investors often shy away from industrial applications despite similar funding requirements to therapeutic biotech. In pharmaceuticals, regulatory approval guarantees value (for the most part). In industrial biotech, even perfect execution doesn't ensure market adoption.

But Ronaghi sees some advantages from the recent downturn: "It has gotten people to think very clearly about solving problems... We're getting to be more market-driven.”

Pharma Partnerships Are Happening Earlier, But With Strings

The relationship between big pharma and biotech is also undergoing a fundamental shift. "Historically, pharma has been partnering at the late stage," Ronaghi explains. "Phase two is what everybody was driving towards."

Now, partnerships are happening at Phase 1, and even earlier. Several factors are driving this:

• Pharma faces massive patent cliffs (e.g., Keytruda coming off patent in 2028)

• Biotech companies are struggling to raise traditional venture funding

• Certain modalities (like ADCs) can demonstrate value earlier (e.g., if you’re able to demonstrate lower/negligible toxicity with tumor shrinkage in a Phase 1 trial)

But there's a catch: "We're seeing a lot more option-based deals, which I think is interesting. Lower upfront and then larger downstream economics."

The competitive dynamics matter too. In crowded indications like non-small cell lung cancer, pharma can demand lower upfronts with better downstream terms. In less competitive areas, biotechs can negotiate higher upfront payments but sacrifice downstream economics.

This shift fundamentally changes how biotechs need to think about development strategy and exit planning from day one.

China's Controversial Cell Therapy Advantage

Ronaghi also had a few things to share concerning China's position in biotech, particularly in cell therapy.

"China will be able to iterate more quickly in the cell therapy space, given how they're able to get to first-in-human faster than we [the USA] are," he argues.

"And because of that speed, we may see increased safety risks and even patient deaths in these early clinical phases in China. That’s obviously something none of us want, but they are going to get a lot of data very quickly."

It's a stark assessment of different regulatory approaches and their consequences. While the U.S. emphasizes safety through lengthy approval processes, China's approach enables rapid iteration and data generation that could accelerate the field overall.

"If you're able to generate a ton of data, iterate, and get COGS down on cell therapy, you have a lot more shots on goal. We know cell therapies work, they're super powerful, but we’re still struggling with accessibility," Ronaghi notes.

The question in cell therapy has always been cost and scalability - problems that might be solved faster through China's more aggressive approach.

The Unglamorous Truth About Value Creation

Perhaps the most important insight from our conversation is this: success in biotech often comes from really nailing the boring improvements, not just the breakthrough innovations.

"So much of our field dies quietly in CMC," Ronaghi observes, referring to Chemistry, Manufacturing, and Controls - the unglamorous work of actually making drugs reproducibly, safely, and at scale.

Whether it's supply chain dynamics, quality control strategies, or manufacturing processes, the "not sexy side of our business is what drives a lot of the wins and losses."

The field's worship of novelty - new modalities, new approaches, new platforms - often overshadows the incremental improvements that actually drive value: better delivery chemistry, improved quality control, more efficient manufacturing processes.

"A lot of these don't make the super splashy headlines, but they make or break our industry in a lot of ways," Ronaghi notes.

Ironically, AI might help here by getting people to think about "all the boring processes and parts of the therapeutics supply chain that can be improved with AI and can drive margin."

Looking Forward: Evolution or Extinction

Despite the challenges, Ronaghi sees the current environment as a necessary forcing function for the industry to confront long-standing inefficiencies.

The companies that will succeed are those that embrace capital discipline and realistic timelines. "I think the silver lining, if there is any, is we are getting back to a world where people are being, for the most part, very disciplined on cash," Ronaghi notes, emphasizing how the current environment is "dictating based on fundamentals, like what’s your differentiating science."

The companies that will succeed are those that embrace this evolution—focusing on capital efficiency, realistic timelines, and solving real problems rather than chasing hype cycles.

For industrial biotech, the next few years are existential. For therapeutic biotech, it's about learning to do more with less. For platforms, it's about finding sustainable business models beyond the venture capital sugar high.

As for AI in biotech? As we mentioned earlier, Ronaghi considers AI “a force multiplier, not a replacement," and those who understand this distinction - and apply AI where it actually adds value rather than where it sounds impressive - will be the ones left standing when the hype cycle ends.

The biotech industry has always been characterized by long timelines, high failure rates, and occasional spectacular successes. What's different now is that the easy money is gone, forcing everyone to confront fundamental questions about value creation that perhaps should have been asked all along.

In this new environment, success won't come from raising the biggest rounds or making the boldest claims. It will come from the unglamorous work of solving real problems efficiently - whether that's reducing CAR-T manufacturing costs, improving drug delivery, or finally figuring out how to make bio-based materials that someone actually wants to buy.

The tale of two worlds in biotech funding isn't going away anytime soon. But for those willing to focus on fundamentals rather than headlines, there's never been a better time to build something real.

Thanks again to Nima and to Breakout Ventures for making this interview happen!