Thinking 'big,' Arch Venture gathers $400M-plus to back a new wave of biotechs

Bob Nelsen, co-founder and managing director at Arch

Arch Venture Partners has joined a lineup of top venture groups which has been making hay while the market sun shines on biotech IPOs. The VC has marshaled more than $400 million for its new investment fund--its eighth--that will now be available to back a new wave of cutting-edge life science companies, often starting from scratch.

Arch is among the most prominent startup players in the life sciences industry. It has jumped into some of the highest profile company launches of recent years, covering everything from Juno and its CAR-T pipeline to bluebird bio ($BLUE) in gene therapy and Bind Therapeutics, a company that emerged from the productive lab of MIT's Robert Langer.

In fundamental ways, says Bob Nelsen, the co-founder and managing director at Arch, its newest fund should look a lot like number 7 and number 6 in terms of the kinds of tech companies the partners will back. The big difference for this fund, he says, will be a matter of size.

"Generally," Nelsen tells FierceBiotech, "we're thinking bigger. We believe that what we do well is take large risks on horizontal platforms."

Evidently that message sat well with Arch's investors. The venture firm easily blew past the low $250 million threshold it had set for the fund to match and then beat the $400 million raised for the last fund. Arch is still counting the cash, says Nelsen, but the total take is up to $425 million.

If you step back for a second, you can see that a range of venture groups has been stockpiling cash for new funds this year. But once you weed out the zombies or venture groups which long ago bowed out of participating in any new venture rounds, driven out by the "crappy returns" for investors over a decade, the number of active players has shrunk considerably, he adds. The remaining groups, though, will be able to go much further than before in funding new therapeutic development.

Arch and others will go big for the biotechs which can reasonably promise to think big.

In combination with partners, says Nelsen, Arch would be able to put together a $200 million A round, though in practice the sweet spot will be much smaller, say $30 to $50 million Series A rounds with another venture partner with $100 million to $200 million for a company to reach an exit. Arch will use the money exclusively for early-stage companies in the healthcare, energy and materials field, and it intends to pursue a global strategy.

Among the disease areas that fascinate Nelsen, the most intriguing right now is neurosciences, a field that has seen the playing field reduced as a series of clinical failures and pratfalls forced a rethink at places like AstraZeneca ($AZN). But if you look at the huge medical need in mental illness and in diseases like Alzheimer's, he says, the potential to come up with a cure, or even a semi-cure, would trigger a huge payout.

"A pull that cures Alzheimer's will be worth more than the market cap of Google," says Nelsen. 

If you stick at that level, find and fund companies that are tackling big needs, he adds, it's possible that the on-again, off-again cycle of IPOs and big exits might be broken. That's why this time, as the market splits between successful and unsuccessful IPOs, the strong can survive while the market shuns the rest.

"This one is different because of the magnitude of the clinical data," asserts Nelsen. "The curative nature, or semi-curative nature of the clinical data" for immuno-oncology or CAR-T will have a profound effect on these companies' fortunes. 

 It all adds up to a soft landing for the current IPO market, Nelsen believes, and a shot at steadier returns for a venture company like Arch.

In recent weeks and months Venrock announced a $450 million fund, Sofinnova came up with $500 million, and Versant is nearing a $300 million fund. There are others. Add them all up and you have billions of dollars that will be used for new venture rounds over the next 5 years.  

- here's the release

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