# The FDA approval process creates an incredibly legible process for healthtech innovations The three-phase Food and Drug Administration (FDA) approval process creates very legible milestones on a health technology’s transition from lab to market. Those legible milestones provide new therapeutics with a relatively straightforward (but still risky!) path from lab to market. Combined with the fact that [[Theraputics have much less market risk than most other high-margin technologies]] and [[Theraputics companies can IPO before they have a product]], a lab can chart a path all the way from a bench top discovery to IP: “based on this interaction, we need $X to get Phase 1 approval, $Y to get Phase 2 approval, and then we will IPO or get acquired because we know that if we get FDA approval, we’ll make $N in revenue.” That level of clarity from day 1 is a complete pipe dream for most technologies in the lab, especially those that could create a new market. The legibility of a drug’s path from lab to market drastically reduces uncertainty for investors, which in turn funnels more money towards drug development. Clear milestones make it straightforward for therapeutics companies to set up tranches with VCs and large drug companies that unlock known quantities of money when they hit approval-based milestones. As an additional benefit, the rough amounts of money it takes to get from one phase to the next is a known quantity. Negotiating that sort of tranching for other technologies is incredibly hard: not only is it hard to know a-priori how much money it will to take to get to the next milestone, it’s hard to negotiate what the milestones would even be, leading to a “I’ll know it when I see it” attitude from investors. There is so much clarity that many large drug companies have incorporated lab-originated therapeutics startups into their business models: to a large extent, big drug companies are giant sales and manufacturing organizations that depend on acquiring startups to create new business lines. This relationship between startups and large companies is completely different in other industries where big company reactions to new technologies often range from confusion to hostility. FDA approval has effects far beyond the United States. In addition to the fact that [[The US accounts for almost half of the world’s spending on drugs]], many countries use FDA approval to expedite their own regulatory process.