Arch Venture Partners’ $1.85 billion fund and strategy inspired by pandemic

  • Arch Venture Partners’ new $1.85 billion fund is its largest to date.
  • The money will be invested in mental health, manufacturing, infectious disease and other types of startups. 
  • Arch has raised $3.3 billion over the last year.
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If there’s one thing Arch Venture Partners cofounder Robert Nelsen is glad the COVID-19 pandemic has altered drastically, it’s his therapy sessions. 

After the novel coronavirus outbreak began, Nelsen, like many Americans, switched from in-person to video conference sessions. He now prefers it.

“I’m super excited to never see my psychiatrist’s 20-year-old couch again,” he told Insider.

Where Nelsen differs from most Americans is that he has much more money at his disposal, and he wants to use that to shake up the mental health industry. His venture capital firm, Arch, closed its largest-ever investment fund on Thursday, raising $1.85 billion to spend on early-stage biotechnology companies.

The plans are to invest in several hot fields — oncology, immunology, genetics — while lending the venture capital firm’s capital and credentials to fields that have been placed in the spotlight during the pandemic, like mental health services, manufacturing, and vaccine distribution. Arch even has its sights on finding solutions for medical professionals being overworked and understaffed. 

Mental health is a bigger problem than cancer, Nelsen says

Arch has made a name for itself by backing some of the biotech industry’s biggest up-and-comers, including Alnylam Pharmaceuticals, bluebird bio, and Grail. It’s also currently the largest single shareholder in cell and gene therapy startup Sana Biotechnology, which is expected to go public this week after raising more than $700 million from investors. 

But the firm been expanding its reach, launching the drug manufacturing venture Resilience last November with $800 million from a pool of investors. Arch also invested in virtual mental health services provider Mindstrong’s Series C round last year. 

Most of the investments made out of Arch Venture Fund XI will focus on drug therapies, but not all of them. When it comes to the mental health field, for example, Arch will invest in both drug and consumer services companies.

“It is the biggest health problem of our time. Bigger than cancer, bigger than anything,” Nelsen said. “If you’re depressed, they give you a 50-year-old questionnaire. I can know everything there is to treating depression from five minutes on the web, and it all sucks,” he added. 

Arch has invested in a couple of psychiatric drugmakers over the last couple of years, including Boston-based Karuna Therapeutics and San Francisco-based BlackThorn Therapeutics.

While new technology and genetic insights had begun to unlock novel treatment options before the pandemic, COVID-19 kicked open the door on telehealth. Use of these services spiked as the pandemic took a toll on Americans’ mental health. That helped startups in the field raise a record-breaking amount of funding last year and execute some large mergers. 

A rising number of US Adutls say the pandemic adversely impacted their mental health

Insider Intelligence

Large-scale healthcare ventures could lead Arch to consider a SPAC

Arch can raise just about as much capital as it needs, Nelsen said. It has a strong record in the industry.

“Something like 20{2f17427fd8d14b96404d6ef87364a17728f61fb136c23dd9d1a68703fe6eba46} of the world’s venture capital flows through our company,” he noted.

Between Arch Venture Fund XI, which exceeded the firm’s initial goal, and the two funds Arch raised last year, the firm has brought in $3.31 billion.

It’s not the only drug industry investor to raise record levels of capital during the pandemic boom period.

Flagship Pioneering raised its largest-ever fund last April, bringing in $1.1 billion to create and fuel new life sciences startups. Private-equity giant Blackstone, which jumped into life sciences investing after acquiring investment firm Clarus in October 2018, raised $4.6 billion for its first industry fundraising last July. 

But areas like manufacturing, mental and behavioral health, and overall patient care could require end-to-end solutions that addresses the whole scope of the healthcare system, from insurers to infrastructure. Those cases could lead Arch to a special purpose acquisition company, or SPAC.

“Scale just doesn’t really bother us. I have no problem going after big companies, insurance companies or big hospital systems, any of those things,” Nelsen said. “If you need that big of scale, even bigger than Resilence’s scale, you might consider using a SPAC to kind of consolidate multiple companies into one.” 

Several SPACs have been raised by healthcare investors, but few have settled on which company to bring public. A notable example came last month, when virtual therapy provider Talkspace announced it plans to go public through a merger with Hudson Executive Investment Corp.