ARCH Raises $3 Billion Fund XIII, Doubling Down on AI-Driven Drug Discovery

On September 26, U.S. biotechnology investment firm ARCH Venture Partners announced the final close of its ARCH Venture Fund XIII, raising over $3 billion to support the formation and development of early-stage biotechnology companies. The thirteenth fund follows the twelfth fund, which raised $2.975 billion and was announced in June 2022.

Robert Nelsen, Co-Founder and Managing Director of ARCH, stated, “Over the past 38 years, ARCH’s investment philosophy has remained consistent: we bet on groundbreaking science and exceptional teams to build transformative companies. We believe that artificial intelligence and new data-driven biological insights will help establish a healthcare system that is more preventive, therapeutic, and equitable.”

“ARCH has a long history of identifying top forward-looking trends in life sciences R&D and backing individuals who drive truly breakthrough scientific hypotheses,” said Keith Crandell, Co-founder and Managing Director of ARCH. “We are very excited about the pace of innovation and the efforts to understand diseases at a deeper level.”

In February this year, ARCH announced the completion of fundraising for its 13th new fund, reaching up to $3 billion. This comes less than two years after the firm closed its largest-ever raise of a similar size, also amounting to $3 billion.

To date, Fund XIII has invested in a portfolio of biotechnology companies, including Xaira Therapeutics, Metsera, ArsenalBio, and Mirador Therapeutics. Notably, Xaira Therapeutics secured a $1 billion mega-round from Fund XIII in April, marking the largest financing deal in the biopharmaceutical sector this year.

As artificial intelligence serves as a transformative technology, ARCH believes there is significant potential in this field to create the next Genentech or Regeneron, with high expectations placed on Xaira.

Xaira, founded in May 2023, currently remains in stealth mode. Co-founded by two prominent venture capital experts in the biotechnology sector—Bob Nelsen of ARCH Venture Partners and Vik Bajaj of Foresite Labs—Xaira is dedicated to applying AI across three domains: discovering new biology, designing molecules, and conducting clinical trials. Drug development is a field fraught with failure; however, novel generative AI approaches, such as de novo design of complex molecules and identification of new targets, can shorten timelines by months or even years. To gain deeper insights into biology and identify new drug targets, Xaira has acquired teams and technologies from gene-sequencing giant Illumina and biotech startup Interline Therapeutics, focusing on proteomics—the study of how proteins change in health and disease.

With the completion of fundraising for its 13th fund, ARCH has cumulatively raised 13 funds to date, with total assets under management reaching $12.3 billion. Based on ARCH’s investment portfolio and the strategic focus of its new fund, the firm is highly optimistic about the future potential of AI-driven drug discovery and has made significant bets on a cohort of AI pharmaceutical companies.

In addition to Xaira, which set a record for biopharmaceutical financing this year, ARCH has also invested in several AI-driven new drug R&D unicorns. A notable example is insitro, an AI pharmaceutical star company founded by Daphne Koller, a renowned female AI scientist. The company has raised over $600 million to date, with ARCH serving as one of its founding investors and participating in all financing rounds thus far.

Furthermore, Generate Biomedicines, an AI-plus-protein therapeutics startup that has raised over $700 million in cumulative financing, also enjoys the backing of ARCH. Founded in 2018, Generate aims to leverage artificial intelligence to elucidate the relationships between protein sequences, structures, and functions, thereby enabling the de novo design of entirely novel proteins. Its proprietary generative platform (the Generate Platform) operates through a continuous cycle of generation, construction, measurement, and learning, which can significantly accelerate the identification and validation of targets and therapeutic agents. This approach enhances the specificity of generated proteins for their intended targets, while reducing the time and cost associated with identifying and developing clinical candidates.

To date, ARCH has invested in nearly 10 AI-driven pharmaceutical companies, including Dewpoint Therapeutics (AI + biomolecular condensates), Erasca (AI + precision oncology), Neumora Therapeutics (AI + neuroscience), Vilya (AI + macrocyclic peptides), and LifeMine Therapeutics (AI + fungal drug discovery). Among these, Erasca and Neumora Therapeutics have successfully completed their initial public offerings (IPOs), gaining recognition from the capital markets.

As a well-established and renowned early-stage investment firm in the U.S. life sciences sector, ARCH has always been generous in investing in top-tier scientists and technology platforms.

ARCH Venture was founded in 1986 by Steven Lazarus, Robert Nelson, Keith Crandell, and Clint Bybee at the University of Chicago. It launched its first fund, ARCH Venture Fund I, in 1989, with a size of $9 million. The fund was initially positioned to assist the University of Chicago in translating scientific and technological achievements into commercial applications. Among the 12 startups it invested in, four went public through initial public offerings (IPOs), and four were acquired.

In 1992, the founding team established ARCH Venture Partners as a market-oriented fund management entity independent of the University of Chicago, and launched its second fund the following year. This fund was highly successful, investing in a total of 22 companies, six of which were spin-offs from companies backed by the first fund. It was during this period that they gradually recognized ARCH’s evolution into a seed and early-stage venture capital fund. Additionally, the fund made later-stage investments in its own portfolio companies, a strategy that not only reduced the overall risk level of the portfolio but also shortened the time required to recoup investments.

The success of its second fund also propelled ARCH to prominence, expanding its investment scope from laboratories to companies and paving the way for investments in early-stage technology startups. Since then, ARCH has raised new funds on a three-year cycle.

Industry analyses have summarized ARCH’s investment style as follows: first, a preference for platform-based, general-purpose technologies applicable across multiple domains; second, incubating companies and engaging deeply in post-investment management; and third, pursuing bold progress with a willingness to take risks.

This investment style is evident from its representative portfolio companies. ARCH was an early investor in the DNA sequencing giant Illumina and has, over the years, built positions in numerous leading biotechnology firms, including Alnylam (a leader in RNA therapeutics), Juno (a pioneer in cell therapy), Receptos (an autoimmune disease drug developer), Vir (an antibody therapeutics company), Beam (a leader in gene editing), and Twist (a leader in DNA synthesis). Furthermore, ARCH made significant acquisitions of globally leading biotechnology companies such as Grail (a pioneer in early cancer detection) and Vividion (a leader in chemoproteomics).

Although ARCH also has a substantial number of investments in mid-to-late-stage projects, it tends to invest at earlier stages compared to other funds. ARCH’s investment strategy involves first evaluating opportunities and the underlying science before considering how to establish a company. Depending on the maturity level of the technology and the development landscape of the industry, the timing of company formation, as well as the time and effort required, can vary significantly.

Among the many emerging companies backed by ARCH, many originated from academia. ARCH appoints scientists to management roles while developing novel technologies, believing that possessing pharmaceutical industry knowledge while working in academia offers significant advantages.

ARCH’s investment criteria primarily focus on technological novelty, target market size, and team strength. Through early-stage capital infusion, ARCH assists founding teams in validating the reliability of mechanisms and the druggability of targets. It then continues to provide follow-on investments to help companies build their teams and design their pipelines, ultimately guiding them to the public capital markets.

To address the frequent lack of a CEO in professor-led startups, ARCH opts for deep collaboration with industry. ARCH typically invites senior industry experts from various fields to serve as Venture Partners or advisors, participating jointly in startup formation and project evaluation. When a project reaches an appropriate stage, interested experts may transition into the role of CEO to help bring the venture to fruition.

Investment in the pharmaceutical sector is often characterized by high risk and high reward, a trait that is even more pronounced for early-stage projects. ARCH has paved the way for translating scientific achievements into marketable products through its unique evaluation criteria and investment philosophy. This approach has also had a profound impact across the entire venture capital industry.

In addition to ARCH, numerous pharmaceutical venture capital firms have successfully secured new fundraising this year. In July, Flagship Pioneering raised up to $3.6 billion, expected to support 25 companies. In June, Foresite Capital disclosed a $900 million fund. Additionally, Sands Capital raised $555 million in May, Scion Life Sciences raised $310 million in February, and TCGX announced in January that it had secured $1 billion in new funding.

Meanwhile, investment in China’s biopharmaceutical sector is gradually “emerging from the trough.” In January, Huimei Capital officially announced the final closing of its new RMB venture capital fund, with a total size of RMB 1.5 billion; in March, Sequoia China successfully raised an RMB 18 billion fund, marking the largest fundraising by a Chinese venture capital firm in the past year; in June, Decheng Capital disclosed plans to raise USD 700 million for its fifth fund; in July, LongRiver Capital announced the completion of fundraising for its inaugural USD fund, sized at nearly USD 400 million, among other developments.

Signs of recovery appear to be emerging, with A-shares also showing an upward trend. If this momentum persists and garners broader response, it could well prove to be a ray of hope amid the economic winter.

References:

Betting Their Careers and Futures: How Big Is Top VC Firm ARCH’s Appetite for AI Drug Discovery? — Zhiyaoju