When the private biotechnology company Microbia Inc. closed a $75 million round of funding in February, investors sat up and took notice. Not only because the Cambridge firm had just landed the biggest local round of biotechnology venture financing in two years, but also because a large chunk of the money came from hedge funds.
A month later, its Cambridge neighbor, Merrimack Pharmaceuticals Inc., reported its own large financing round — $65 million, also driven by hedge funds.
Hedge funds are unregistered money-management operations that typically make a wide range of global investments. Their arrival in the delicate ecosystem of local biotechnology investing sent a shudder through the venture-capital community, whose firms not only finance, but also grow, counsel, and help staff young companies, all in exchange for the potential to cash out on the companies that succeed.
“People just sat up and said, my God, those are investment opportunities that would traditionally be done by venture capitalists,” said Michael Greeley , managing partner of IDG Ventures, a Boston venture-capital firm.
With hedge funds setting their sights on young companies before they go public, some venture capitalists worry about losing out on potential returns, especially in the more secure later stages of private financing.
