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37 investors, 12x in 18 months
A reluctant CEO
The company was a race against time to make a medicine for two children with Pompe disease, and nobody wanted to run it. The best the founders could do for a CEO was John Crowley, the children's father. He never thought it would succeed, and he never wanted to look back with regrets that he hadn't tried everything.
Unusual funding
Funding was unusual. The angel round was meant to raise a million dollars. The minimum investment started at $250,000 and eventually dropped to $5,000. In the end, 37 individuals put in the money, and the biggest check was $75,000.
Eighteen months
The company, Novazym, ran just 18 months from start to finish. Its angel investors earned about a 12x return in that time, which turns out to be pretty good in venture capital. Success came from the talent and passion of the people hired, and probably from the fact that most of the team, the CEO especially, didn't know what they were doing and had no book on how to build a biotech company. Novazym raised several million dollars of venture capital along the way and was then acquired by Genzyme.
Why do early investors earn big multiples?
An angel investor buys shares at a very low early valuation, before the company has proven anything. If the company is later acquired at a much higher value, those early shares multiply in worth, while later investors pay more for theirs. A 2007 study of angel group investments by Robert Wiltbank and Warren Boeker, funded by the Kauffman Foundation, found that about half of exits lost money while a small share returned ten times the investment or more.
Why do big drugmakers buy small biotechs?
A small biotech takes on the early risk of discovery and the first trials, and a larger company can wait for clinical data before paying. Buying a company with a promising drug is often quicker than building one from scratch. It also helps large firms replace sales that fall away when patents expire. Sanofi acquired Genzyme in 2011 for about $20 billion.
Why do startups chase rare diseases?
The US Orphan Drug Act of 1983 gave companies that develop drugs for rare diseases seven years of market exclusivity, tax credits on trial costs, and waivers of FDA fees. In the decade before the law, fewer than ten such drugs reached the market. Since then, hundreds of orphan drugs have been approved. In the United States, a rare disease is one that affects fewer than 200,000 people.
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