Mapping the emergence of clusters of biotech firms specializing in drug discovery in Denmark and Sweden from 1997 to 2004 we find that Denmark faster and to a higher extent concentrated activities in the mid-sized categories of firms and also earlier and more steeply increased key outputs such as patents and projects. Regression models on firm-level data expose differential supply of venture capital (VC) as a key factor behind this divergence between countries. Further regression analysis examines if VC causes output discrepancies between the two countries not only through differential capital supply but also by the strategies they induce into drug discovery firms (DDFs) through the valuations by which they react to firm performance over the previous financing round. We find significant country differences, Danish investors to a stronger extent inducing output-oriented strategies. The context within which VC emerged in the two countries is discussed as possible causes of the differences between Denmark and Sweden for the role of VC in shaping their emergent bio-clusters.