A top biotech VC looks for 2 factors when investing in startups that could shake up the healthcare industry

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  • Arch Venture is one of biotech’s biggest investors, leading $200 million to $800 million rounds.
  • The fund’s leaders pick healthcare issues that make them angry, then look for a solution. 
  • Managing Director Kristina Burow wants to overhaul brain-disorder treatments and autoimmune issues.

Some biotech investors invest in new companies because they’re excited about new science. 

But the investors at Arch Venture Partners are instead driven by frustration. 

Cofounder Robert Nelsen told reporters he was upset when hearing about shortages of COVID-19 treatments, surgical masks, ventilators, and other desperately needed items. That led to the creation of the $800 million manufacturing venture Resilience in November. 

Meanwhile, Kristina Burow, a managing director at Arch Venture Partners, had been having painful conversations with friends who had dealt with depression and aphasia, a disorder where the segments of the brain responsible for communication are damaged. 

Burow and others’ exasperation led to the creation of Neumora. The startup raised $500 million — one of the industry’s largest early investments in a company developing treatments for brain disorders.

“You’ve got to get a little bit angry” has become a popular refrain within Arch’s Chicago offices. 

Burow broke down how Arch, one of the highest-performing venture-capital firms focused on biotech, uses that anger to pinpoint investments with clear roadblocks — and a plan to get around them.

Looking for roadblocks and solutions

Anger is a strong motivator, but none of Arch’s ventures would take off without identifying what Burow calls the roadblock — the factors standing in the way of improving the problem — and the pickax, or how you cut through it. 

Take Resilience as an example. The roadblock wasn’t just that there weren’t enough manufacturing plants but also that the industry wasn’t investing upfront in creating more efficient standards for making cutting-edge viruses that deliver medicines, cell-based therapeutics, and genetic therapies. Resilience is buying up and building facilities where it will set up more uniform manufacturing processes.

When it comes to Neumora, Arch got on board only after identifying the pickax: a mechanism the biotech calls a “data biopsy.”

In many cases, neuroscientific drug development has been held up because researchers can’t just go in and take a sample of a person’s brain tissue while they’re alive. The digital biopsy would gather other types of information from genetic tests, brain scans, applications assessing eye movements, and other tools to determine which biological characteristics drugs should target and whom they should be used on.

Burow has several other fields in her sights. She wants to create better medicines for autoimmune conditions like lupus and multiple sclerosis and overhaul women’s healthcare.

But she’s still searching for the pickaxes. When it comes to autoimmune diseases, Burow suspects that there’s something we don’t understand about the patients and that there may be more than one type of lupus or more forms of multiple sclerosis, she said. It will be hard to develop better drugs without figuring that out. 

Arch is willing to invest almost any dollar amount in its big bets

The plan is to bet big on startups that have found the right pickaxes for the healthcare problems that make venture capitalists at Arch see red.

Arch startups in the past two years have started with between $23 million to $800 million in initial funding. 

During Burow’s nearly 20 years at Arch, the top brass has never told her there’s a limit to what the firm will invest. When it’s one of Arch’s big bets to upend a facet of the drug industry, the firm is willing to invest almost anything, she said.

Take EQRx, the drug-price-lowering startup Arch backed last year. It raised $200 million for its launch — one of the largest Series A rounds in the industry.

Arch has the resources to make this happen after closing its 11th fund in February and raising $1.85 billion

The initial financing given to biotech startups has been increasing at Arch and across the industry. While Burow isn’t convinced that Arch will participate in a $1 billion Series A round, she does think it will happen soon, she said.  

“I would want to be convinced that there are enough good people and programs in a company like that,” she said. “But, I’ll tell you, the science is moving so quickly that I could easily see in a few years — or even a few months — that a billion-dollar series A to fund some big platform idea makes all the sense in the world.”