ARCH Venture Partners recently held an initial close on its sixth seed-stage fund, with $75 million in dry commitments from four returning investors. The overall marketing plan is to close on between $250 million and $350 million by the end of the year.
“The first close came earlier than expected, so we were a bit surprised by it,” says Bob Nelson, a Seattle-based managing director with ARCH. “We’ll probably hold another one in the next couple of months… We’ve had nearly a 100% hit rate with investors who’ve done due diligence on [the new fund].”
Nelson adds that ARCH Venture Fund VI will follow the same strategy as its $380 million predecessor, which closed in early 2000. This means, ARCH will follow a multi-disciplinary approach, investing in ideas centered on life sciences, physical sciences and information technology. Specifically, it targets companies focused on telecommunications, genomics, medical devices, pharmaceuticals, semiconductors, optical networking and advanced materials that have been developed in a university. It’s a similar model to that employed by a handful of other firms, but the main difference is that ARCH has been doing it longer.
Spun out of the University of Chicago in 1989, ARCH now has offices in Chicago, Albuquerque, New York, Seattle and Austin, Texas. To date, the firm has raised nearly $800 million in capital and invested in more than 92 companies-12 of which have gone public.
ARCH has done deals coming out of other research laboratories and has begun working with the research programs at large corporations to spin out technologies into new companies. The most successful example of this process is Boulder, Colo.-based, Array BioPharma Inc. (NASDAQ: ARRY), which ARCH helped spin out of Amgen Inc. BioPharma, a drug discovery company, has a market cap of about $350 million and it generated a return of several times ARCH’s initial investment.
Among the firms ARCH frequently co-invests with are CW Group, Frazier & Co., Madrona Venture Group and Venrock Associates.
ARCH still has enough dry powder left to add a few new portfolio companies to its fifth fund, but it probably will begin calling down committed capital sometime in the third quarter.
The firm usually invests between $10 million to $15 million in portfolio companies during their private life cycles, and it hopes to hold a 20% ownership stake at the time of an exit. Its initial investment can be as little as $20,000.
The firm declined to name any of the limited partners participating in the new fund. Past investors include Allstate Insurance Co., Dow Chemical, First Union Corp., Goldman Sachs, John Deere Pension Trust, the Massachusetts Institute of Technology, State Farm Mutual Automobile Insurance Co., TIAA/CREF, the University of Southern California, the University of Washington and Washington University.