Preparing Biotech Financials for a Series B Round

A Series B is often the round that carries a clinical-stage biotech company to its first meaningful data. The checks are larger, the programs are further along, and the investors writing them want to know two things: how the capital gets the company to its next value-inflection point, and whether the numbers behind the spend can be traced back to real clinical activity and contracts.

Some companies face a further question. When a crossover round or IPO is a credible near-term path, investors may also look at whether the finance function is evolving in a way that it’ll soon be capable of supporting the rigorous demands of public company reporting. The core of preparing for these funding rounds lies in financial clarity around milestones, R&D spend, and equity, and those fundamentals carry forward into any later transaction.

What Series B Investors Examine Most Closely

For a clinical-stage biotech, two areas tend to draw the closest scrutiny in diligence: runway and R&D spend. Both are straightforward to report and difficult to report well, and the difference usually shows up in the detail behind the headline number.

Runway Measured Against Milestones

Investors evaluate runway relative to the next milestone, typically a clinical data readout. For companies whose Series A was tranched, that analysis involves two sources of capital: cash on hand, and committed tranches that investors release only when defined milestones are met, such as IND clearance, first patient dosed, or completed enrollment. A clinical delay can push back both the readout and the milestone that unlocks the next tranche.

A simplified hypothetical shows how this plays out. A company holds $15 million in cash and burns $1.25 million per month. A second Series A tranche of $12 million is released when Phase 1 enrollment completes, planned for month 8, and the Phase 1 readout is planned for month 16. On plan, cash on hand lasts 12 months, the tranche arrives at month 8, and the $27 million total carries the company past the readout with a cushion of more than five months.

Now assume enrollment runs six months behind plan. The tranche milestone moves to month 14, while cash on hand runs out at month 12, leaving a two-month gap before the tranche can be drawn. The readout moves to month 22, and reaching it at the same burn rate requires $27.5 million, slightly more than the company's committed capital. The delay creates a liquidity problem well before the readout arrives.

That gap turns directly into a fundraising question. To reach the delayed readout with a six-month cushion, the company needs cash through month 28, or $35 million in total, roughly $8 million beyond its committed capital. Timing is the more pressing issue: the company needs a bridge, a renegotiated tranche milestone, or an earlier Series B before month 12. Each option benefits from lead time, which is why the gap needs to appear in the model long before it appears in the bank account. The Series B itself may be sized well above this floor to fund the next stage of development.

Tranche terms vary. Some milestones are objective, others leave release to investor discretion, and investors may waive or restructure milestones as circumstances change. A credible model reflects the actual terms, with cash on hand and contingent tranches shown as separate lines, each tranche milestone tied to the same clinical timeline assumptions, and scenarios for enrollment delays, programs being deporioritized, and headcount changes. The base case should also tie back to historical burn rate trends so investors can see the forecast rests on actual spending patterns.

R&D Spend by Program and Accrual Support

R&D is typically the largest expense line for a clinical-stage biotech, and investors expect it to be broken out by program, with CRO and CMO costs reconciled to contracts. This program-level view sits at the center of sound biotech accounting. The more technical question is how the company accrues those costs.

A second simplified hypothetical illustrates the stakes. Based on the CRO's activity reports and contract terms, documented services performed through quarter end (site activations, completed patient visits, and monitoring) total an estimated $3.6 million. The CRO has invoiced $2.4 million, because its billing lags the work. A company that records expense only as invoices arrive understates R&D expense and operating loss for the quarter by $1.2 million.

The missing accrual leaves the quarter's cash spend unchanged and identifies an obligation the runway forecast must account for. The $1.2 million represents work already performed that the company will pay for in coming quarters, and investors who reconstruct the accrual during diligence will notice the gap. Public biotech companies commonly describe their accrual estimates as based on work completed, patient enrollment, and contract terms. A documented methodology for clinical trial accounting built on those same inputs gives investors a clear answer when they ask how the numbers were derived.

Accounting Areas That Surface During Diligence

Beyond runway and R&D, several accounting areas can take longer to resolve than founders expect, because correcting them may require revisiting prior periods. The table below summarizes where issues commonly arise.

Each of these items also tends to appear on standard life sciences due diligence request lists, so documentation prepared for a Series B continues to serve the company in later financings or a strategic transaction.

When a Crossover or IPO Is a Credible Path

A crossover round brings in investors who also hold public equities and who often expect to participate in a company's IPO. When that path is realistic within the next year or two, diligence may extend into public company readiness. Three planning considerations stand out:

• Audit history and auditor fit. Under the JOBS Act, an eligible emerging growth company may include two years of audited financial statements in its initial IPO registration statement. That provision applies to the IPO filing itself. The practical planning step is to determine early whether existing audits, and the current auditor, can support the contemplated filing, since audits for SEC registrants must meet PCAOB standards.
• Close speed and controls. Public companies report quarterly on fixed deadlines. A monthly close that depends on manual reconstruction or undocumented adjustments is worth addressing well before a filing is on the calendar.
• Finance team depth. Leadership should assess whether the current team can scale into public reporting. For many companies at this stage, a fractional life sciences CFO paired with an outsourced accounting team provides the capacity to build toward that standard.

For companies without a near-term crossover or IPO in view, these items are useful to track and can stay secondary to core Series B preparation.

What to Have Ready Before the Raise

Preparation helps a company answer diligence requests quickly and identify problems while there is still time to fix them. A Series B biotech should aim to have the following in place:

• Historical financial statements, available audit reports, and an auditor plan. Closed monthly financials, any audits completed to date, and a view on whether the current or prospective auditor fits the company's likely path over the next two to three years.
• A runway model tied to clinical milestones. Scenarios for enrollment timing, program prioritization, and hiring, reconciled to historical spend.
• Program-level R&D reporting and accrual support. CRO and CMO costs mapped to contracts, with accrual estimates backed by activity reports and a written methodology.
• Equity and cap table reconciliations. A cap table that ties to board minutes, the general ledger, and stock compensation records.
• Documented accounting policies. Written positions on accruals, cost allocation, grant funding, and licensing or collaboration payments.

Several of these items take months to build or correct, so starting six to twelve months ahead of a planned raise gives the team room to work through issues. Some companies bring in audit preparation support services during this window to tighten documentation before fieldwork begins.

Turning Clinical Activity Into Investor-Ready Financials

Regardless of a company’s stage, investors want to trace a biotech's spend back to its clinical activity and contracts, and to see a clear path from current cash to the next milestone. At G-Squared Partners, our team helps clinical-stage companies build that clarity through milestone-based runway models, accrual methodologies grounded in CRO activity, reconciled equity records, and more.

To learn more about how G-Squared Partners can support your next raise, schedule a free consultation with our team.