CHICAGO – ARCH Venture Partners is angling for a first quarter 2001 final close on its newest effort, the $300 million to $400 million-targeted ARCH Venture Fund V LP, said Bob Nelsen, managing director. The vehicle, which was launched in the spring of this year, held a second close on $250 million in September, he added.
The new vehicle will stick to ARCH’s traditional investment focus, backing early-stage companies developing new technologies in the physical sciences, life sciences and information technology/information sciences technology spaces, said Keith Crandell, another managing director at the firm.
“We are looking for companies developing something with a proprietary technology,” he said, adding “if a company is doing something dependent on market timing or with a consumer element, then we’re probably not going to be in on it.” ARCH spends a considerable amount of time scouting for these types of deals in the technologies coming out of national research laboratories and academic research institutions, he noted.
Crandell said the new vehicle should invest in 30 to 35 companies with an average deal size of approximately $10 million. Some 20% to 25% of the vehicle’s total capital will go toward life sciences deals, he said, noting approximately 30% to 40% of the fund will back physical sciences companies. The remainder of the vehicle’s capital will be invested in IT and information sciences technology deals, he added.
Nelsen declined to reveal how much ARCH will invest in the fund, beyond saying the firm’s managing directors participated strongly. He described the vehicle’s management fee and carried interest structure as conventional.
While ARCH has opportunistically made investments in various parts of the country, the majority of the fund’s deal flow should come from the areas around ARCH’s offices in Seattle, Chicago, Austin, Texas and New York, Crandell said. “When you are an early-stage investor, you want portfolio companies to be an hour or two drive from the office,” he explained.
ARCH’s new fund has received a good response from the firm’s existing limited partners, Crandell said. Nonetheless, fund raising for this vehicle has been a more arduous process than for the firm’s previous fund, 1999’s $175 million ARCH Venture Fund IV LP.
“It took six weeks to raise the fund last time and we were a $100 million over subscribed, so we upped it by $50 million,” he said. “There is a little less money out there right now, so we had to go out and meet some more people, and that has been a good process,” he added, noting “it’s a little disappointing in comparison, because it is not as easy – but the net-net is that is the way it is now.”
Nelsen said new LPs for Fund V include: The Goldman Sachs Group Inc., First Union Corp. and the Mitsubishi Pension Fund. The firm’s existing LPs include the Wellcome Trust, Massachusetts Institute of Technology, Dow Chemical Co., Allstate Insurance Co., the University of Washington, Washington University and the University of Southern California.