Private investment in young biotechnology companies has appeared to stabilize after an up-and-down past few years, with funding totals from the first half of 2024 roughly matching the pre-pandemic pace.But the sector is not booming like it was in 2021 and 2022. Initial public offerings remain challenging, pushing more private companies to pursue, or at least consider, deals with pharmaceutical companies. Those large drugmakers are now handing over less cash in licensing agreements than they did previously, however.Firms such as Versant Ventures are getting creative, including by turning to a model known as build-to-buy that was popular among biotech investors in the early 2010s.Essentially, this model offers a pharma company the option to acquire a startup or its assets in return for early investment, helping venture companies build out disease-specific portfolios. Borealis Biosciences, which launched Thursday with $150 million from Versant Ventures and an options deal with Novartis, is the latest example.Its the second build-to-buy funding deal Versant has backed this year, following its launch of obesity drug developer SixPeaks Bio in May.I think more and more, early collaborations are important for early biotechs to make sure they have validation and the resources, said Jerel Davis, a managing director at Versant Ventures.Davis, who has worked with Versant since 2011, has worked with many notable life sciences companies, including CRISPR Therapeutics, RayzeBio and Chinook Therapeutics, the latter of which was Borealis predecessor.The following conversation has been edited and condensed for clarity.BIOPHARMA DIVE: Versant seems to like building these young companies with a pharma company deal already in place from the get-go. What is inspiring you to do that right now?JEREL DAVIS: Pharma has always been the destination, source of validation and way that some products from biotech get to market. We had a cycle with the equity boom where I think we forgot that.A bunch of biotech investors and biotechs thought these small biotechs would take all these products to market. But that's not the nature of our ecosystem. The nature of our ecosystem is that we have incredible experts in commercialization at larger pharmas that are going to be the ultimate home for a lot of the assets.If you look back [since] mid-2023 at Versant, we've had five M&As totaling more than $10 billion in our portfolio. If you look at the entire biotech universe, the M&A that's happened over the last two or three years, it's a reminder that pharma is really an acquirer of and the best commercializer of assets.In terms of early-stage company building, there are fewer investors that want to go early and do things that are that visionary. In some ways, pharma understands it better than some equity investors now in terms of the unmet need for patients and what we need to do if we really want to push the envelope.Whats different about biotech investment today compared to where we were a few years ago?DAVIS: The early-stage investing environment has significantly contracted. There are far fewer equity investors that want to put capital into early-stage biotech.These early-stage biotechs are by definition ambitious. They're trying to do something others haven't done before. There is great reason to have that ambition, but there's also some risk. It's hard in today's environment for new, highly innovative early biotechs to live up to their ambition. How do they live up to their ambitions if it's hard to secure the amount of capital required to pull off these important and challenging things?What do you make of executive teams who previously sold later reuniting to start a new company, such as with Borealis?DAVIS: There's nothing more motivating to us than to have a team that has had real impact on biotech and patients want to come back and do it again. They realize they have long careers and their work is not done yet.It's been great to see the energy of this Borealis team and how they're approaching Chinook 2.0 in many ways similarly [and] in some ways differently than the first time around. We love working with repeat entrepreneurs. At Versant, I'd say probably half our companies at least have return entrepreneurs or people who weve worked with in the past. Jeff Stafford [CEO of 858 Therapeutics] is a four- or five-timer at this point.It's not thought about very carefully, but to launch a new biotech, it usually takes a year or two to build a site, lab and team that works really effectively together. If you have the chance to have that on day one, it is an incredible advantage. And if you have that chance to have it on day one with deep expertise in exactly the area you want to go in this case, renal disease it's an even more privileged position to be in.The flip side of this question: Do you think some biotechs sell too early? Another example of a leadership team reassembling after an acquisition is with Prometheus Biosciences, whose former executives formed Mirador Therapeutics this year.DAVIS: A public company and a private company are very different situations. In a public company, you have shareholders that have a share price, and you'll have an offer from a pharma company, and the board or management have to sell with their fiduciary hat on.A private company has much more discretion among shareholders and management as to whether to sell or not. So I think those are very different situations. Prometheus was a public company, Chinook was a public company as well. The reality is, if you have a biotech that's in the public markets and pharma wants to build out a franchise area, they are going to make an offer at some point if you have a promising therapeutic. So it's hard to say that we sell too early. Companies will get bought if theres an attractive acquisition offer on the table. '