There’s a persistent myth in the academic medtech and biotech spinout ecosystem about how funding usually progresses. According to the myth, funding is usually linear and staged by type. First there’s grant funding. Then grants are wrapped up, and investors step in. Finally, revenue ramps up, and the company is finally self-sufficient and prepares for an acquisition or IPO.
Let’s call this the Three-Course Meal Myth.
No one names this myth directly; it comes out in pieces. Someone will say, “Aren’t you beyond writing grants? Just raise another round.” Or maybe a founder will discount pursuing revenue because “we haven’t gotten to that stage yet.” The truth is that blending funding types is more nuanced and personalized than this simplified model. While blending funding creates a dizzying set of endless choices, there’s also room for creativity and a chance to carve a route that wouldn’t be possible with the overly simplified Three-Course Meal mindset.
Types of early capital
In the early days of spinning out a company, the rate-limiting resource is almost always funding. Even though funding is not the most important topic in a mission-driven health company, funding still dominates most conversations and mental bandwidth.
The major types of startup capital can roughly fit into the following buckets:
- (Bootstrap capital provided by the owners of the startup)
- (Debt and credit financing)
- (Crowdsourcing investment)
- Non-dilutive grants and contracts from government funding bodies
- Non-dilutive grants and contracts from corporate or institutional partners, like big pharma
- Non-dilutive competition awards
- Accelerators & incubators
- Angel investment
- Venture capital investment
- Revenue
I won’t be discussing all these funding types here, but they are worth listing to understand the major options.
One funding type to rule them all
There is only one type of funding that is universally beloved by all: revenue. The darling child of the startup ecosystem reigns supreme in every pitch deck, board meeting, and bank account. With few strings attached to how these funds can be spent (except for taxes), revenue preserves equity for founders and team members while serving as a positive omen for success ahead.
Revenue inspires trust across every stakeholder group: employees, investors, NIH reviewers, partners, and customers alike.
Contrary to the Three-Course Meal Myth, it’s possible revenue can be introduced at any stage, even at the very beginning. Founders often object: “Our device isn’t FDA-cleared yet! We can’t possibly sell it legally until we have completed our V&V and received clearance!”
Perhaps, but have you challenged that assumption? When Enspectra Health first spun out to develop a new medical imaging modality, FDA clearance was years away. In the meantime, we sold Research Use Only systems to leading research institutions. That generated revenue, validating a version of our technology in the market while building the bank account balance.
I think it’s worthwhile to consider and reconsider often how you can weave even small amounts of revenue into your story while you’re growing. Revenue is more valuable than its cash value because of what it promises about your company’s market demand.
In fact, one of the most compelling ways to launch a spinout from an institution is with a stack of Letters of Intent (LOIs) from prospective customers. These are letters from people who desperately want what your company could be selling soon (the early version of the technology). Sourcing these letters from real people who name the price they’d be willing to pay and for what volume of goods they need makes the letters stronger. Revenue is so powerful that even a letter about a whiff of future revenue is sometimes more exciting than a seed grant.
Grants
In the Three-Course Meal myth, grants are the first source of funding for a spinout.
Maybe!
A few obstacles lie in the way:
- Grants include strict rules about how you can spend the money. Some categories
of spending are forbidden, but might be required for the company. Where do you
get the money to spend on those categories? - If your preliminary data or prototype turn out to be insufficient to land that first
grant award, where will the funds come from to bolster your early data?
In general, grant capital is an excellent source of early funding, but it benefits from blending with capital that includes fewer strings about what spending is allowed.
Grants are also an excellent source of later-stage funding! The 2025 reauthorization of the SBIR/STTR program increased the maximum award cap up to $30 million. For a rapid growth VC-backed medtech, biotech, or health tech startup, NIH grants continue to have relevance well through the Series B stage of financing.
Dilutive Funding
Dilutive capital can benefit the company at any stage depending on the circumstances. The reality is that most high-growth, technology-heavy companies cannot thrive without substantial dilutive funding: Seed, Series A, Series B and maybe beyond from a variety of investors.
Because dilutive funding involves giving up equity and corporate control, the pursuit of dilutive funding should always be done thoughtfully. Sometimes I hear this sentiment: “Grants are too hard and slow. I’ll just raise a little more money from my investors.” You pay for that loss of equity heavily during a liquidation event, and you might pay for it with the loss of control of the company. Go ahead and run that back-of-the-envelope calculation first, even if it doesn’t ultimately change your decision.
Dilutive funding from incubators/accelerators, angels, family offices, and venture capital investors has so much nuance, we can’t do it justice here, but I’ll leave you with this final thought. Investment is not the main course. Dilutive funding success does not indicate company success, although it’s sometimes used as an inappropriate surrogate. Remember to keep your eye on market value and driving revenue.
Creative Ideas
Let’s consider some alternatives to the main actors in the Three-Course Meal.
When I’m evaluating a capital-raising idea for a startup, I always consider what extra benefits and risks are attached to raising the capital.
Credit and debt financing and bootstrap founder financing have a place, but it’s limited. These kinds of financing can indicate to others that you believe in what you’re building. The check sizes are usually insufficient to meaningfully build, however.
One type of creative funding opportunity is to craft a bespoke contract with a corporate or institutional partner. This could be a short-term service contract or a rental of research supplies. You could help support an important study. Major risks include exposure of your intellectual property and a distracting, labor drain on your team. The benefits could include capital (although I’ve never seen these sorts of contracts yield
substantial funding) or building trust and “froth” with a strategic partner that may one day acquire your company.
Leveraging matching funds
Investors and government funding bodies increasingly favor co-investment structures. Investors gain confidence knowing a venture can attract multi-channel backing, while federal agencies use matching requirements to de-risk commercialization.
Under federal SBIR/STTR program guidelines, initiatives like the NIH Strategic Breakthrough awards allow could eventually allow for grants up to $30 million when paired with matching private capital. Combining non-dilutive awards with equity investment amplifies your runway without excessive dilution.
Get your blender ready
Building a successful academic spinout isn’t about following a rigid, linear playbook. The strongest companies don’t wait to complete one funding phase before starting the next; they intentionally blend non-dilutive grants, strategic dilutive capital, and early revenue
opportunities from day one.
By moving past the “Three-Course Meal” mindset and blending your capital strategy, you protect your equity, maintain operational momentum, and build a resilient business designed for long-term health impact.
