Where VCs Fear To Tread : Angel investors are filling a critical gap by providing early backing for biotechs

William H. Edwards isn’t your typical biotech magnate. A few years ago, the 54-year-old Raleigh (N.C.) Realtor started to dabble in angel investing, doling out his own money to bankroll a handful of non-biotech startups. But when a friend went to work for Voyager Pharmaceutical Corp., a Raleigh company working on a drug to combat Alzheimer’s, Edwards busted open his wallet — investing not just in its first financing round but in five subsequent ones that raised $40 million total. Edwards is convinced Voyager has a good shot at producing a potential $10-billion-a-year blockbuster. "It takes a small company sometimes to find a cure," he says.

Angels — rich private investors like Edwards — are flocking to biotech. And they’re filling a critical financing gap. Venture capitalists are steering clear of startups, preferring to fund companies with drugs nearly ready for market. Stock investors are equally wary, since one biotech initial public offering after another has nosedived this year. So angels are stepping up, betting that biotech is poised to deliver major drugs for everything from cancer to brain disorders. They poured $1.98 billion into biotech last year, up 10% from 2003 and 52% from 2002, estimates Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire.

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