ARCH Development Fund I Addressing the Void in Seed


Published on

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • Fund raising – 900 leads, over 200 face to face meeting to get to 45 LPs LP’s vs Gp’s
  • Talk about the leverage of syndication Talk about the economic impact of venture capital Measuring the Importance of Venture Capital and its benefits to the U.S. Economy - NVCA
  • Transfer of preferred shares from UChicago
  • ARCH Development Fund I Addressing the Void in Seed

    1. 1. ARCH Development Fund I Addressing the Void in Seed Venture Capital in the Midwest Thomas L. Churchwell Teri F. Willey Christopher E.V. Quinn Locations in Chicago, Illinois West Lafayette, Indiana Kalamazoo, Michigan Peoria, Illinois 350 W. Hubbard, Suite 400 Chicago, IL 60610 312-828-9970
    2. 2. ARCH Development Corporation 86-June 01 ARCH Venture Partners 94-present ARCH Development Partners - Fund I June 01-present <ul><li>ARCH Development Corporation (ADC) is a not-for-profit wholly owned affiliate of the University of Chicago committed to realizing commercial value for innovative early stage scientific discoveries. </li></ul><ul><ul><li>ADC was formed in 1986 to license UC and ANL inventions to existing companies as well as start new companies. </li></ul></ul><ul><ul><li>ADC was formed to assist the University in “bridging the funding gap” as well as implementing the Bayh-Dole Act. </li></ul></ul><ul><li>ARCH Venture Partners (AVP) is a mid-90’s venture fund spin-out of ARCH Development Corporation . </li></ul><ul><li>ARCH Development Fund I (ADFI) is year 2001 venture fund spin-out of ARCH Development Corporation . The ADFI will be managed by ARCH Development Partners. </li></ul>
    3. 3. Fund Summary <ul><li>Expected Size: $30-35 million ($50-75 million with SBIC leverage) </li></ul><ul><li>Currently $30 million under management </li></ul><ul><ul><li>LPs: Banks, Corporations, Foundations, Hospitals, and Universities </li></ul></ul><ul><li>Strategy: </li></ul><ul><ul><li>Strategically partner with communities to create start-ups </li></ul></ul><ul><ul><li>Current partners: Cincinnati, Lafayette, Kalamazoo, Peoria </li></ul></ul><ul><ul><li>Make “pre-seed” investments ($50,000 to $1,000,000) </li></ul></ul><ul><ul><li>Structure deals for optimal early exits </li></ul></ul><ul><li>Primary Deal Sources: University and Corporate spin-outs </li></ul><ul><li>Investments: Biotechnology, information technology and education </li></ul><ul><li>Geographic Focus: Upper Midwest: IL, IN, OH, MI </li></ul><ul><li>General Partners: Experienced investors and entrepreneurs </li></ul>
    4. 4. <ul><li>Thomas L. Churchwell - Managing Partner ARCH Development Fund I </li></ul><ul><ul><ul><ul><li>10+ years starting high-tech companies; 10+ years operating experience </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Raised and managed ARCH Venture Fund I </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Started or actively assisted starting >40 high-tech companies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>BA DePauw, JD Northwestern, AMP Harvard </li></ul></ul></ul></ul><ul><li>Teri F. Willey - Managing Partner ARCH Development Fund I </li></ul><ul><ul><ul><ul><li>15 years technology transfer and start-up experience </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Invested in and worked with >25 start-up companies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Past President of Association of University Technology Managers (AUTM) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>BS U Idaho, MBA Indiana State </li></ul></ul></ul></ul><ul><li>Christopher E.V. Quinn - Managing Partner ARCH Development Fund I </li></ul><ul><ul><ul><ul><li>Founder NetFuel Ventures, an information technology consulting firm </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Invested in and worked with > 15 start-up companies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Co-Founded the Oppenheimer’s Emerging Business and Technology practice </li></ul></ul></ul></ul><ul><ul><ul><ul><li>BS Washington University, JD Washington University </li></ul></ul></ul></ul>ADF I Principals Team
    5. 5. Community Proposal Summary <ul><li>ARCH Development Partners leverage investment from an area to help establish a vibrant start-up community by: </li></ul><ul><li>Investing in 2-3 life sciences start-ups </li></ul><ul><li>Establishing a local presence (co-located with community partner) </li></ul><ul><li>Establishing and running monthly networking meetings </li></ul><ul><li>Assisting in the formation of an angel network/local fund </li></ul><ul><li>Working with community to create and populate an incubator </li></ul><ul><li>Bringing other venture funds to community </li></ul>
    6. 6. We are especially interested in… <ul><li>Type: Science/innovation based company . Prefer university or corporate owned intellectual property as the basis for the spin out (vs independent inventor). Life Science </li></ul><ul><li>Stage: Pre-business plan and management team is fine . We prefer to act as founders at this stage, assist with company formation and management and board recruitment and the acquiring the necessary intellectual property rights. </li></ul><ul><li>Funding: 50k to 1 million for the purpose of squeezing risk out of the venture and positioning it for further investment or revenue generation. </li></ul><ul><li>Market: The product(s) the company is proposing to develop should have a market of 200 million or more (that is the company’s sales are expected to be 200 million or more annually in a reasonable time after product launch.) </li></ul><ul><li>Clear commercialization strategy and competitive advantage : There should be a realistic idea of who and what the competition is and how the idea will reach the market in the form of a product. </li></ul><ul><li>Intellectual property protection : The proposed product should be based on a proprietary position, preferably a strong patent position or the potential for one. </li></ul><ul><li>Management team : If the innovator/scientist does not have relevant business experience, then a willingness on his/her part to participate as a scientific/technical advisor and work closely with qualified management is required. We love to work with experienced start-up company managers but are very willing to recruit management and work very closely with the company to move it forward. </li></ul><ul><li>Exit. The company or proposed company should be one poised for an acquisition exit or in some cases an IPO exit. </li></ul><ul><li>Referral : The plan or idea has been referred by well respected potential investor or similar. </li></ul>
    7. 7. so far… <ul><li>7 rounds of financing. Led 4 of the rounds. 2 bridges to series A (rounds in process) and 2 more rounds in the works </li></ul><ul><li>We said we would concentrate on university science-based deals and that we would use our network to find qualified co-investors early. </li></ul><ul><ul><li>Of the 10 companies in our current portfolio, 8 are university spin-outs and all deals in the pipeline are start-ups based on university science. </li></ul></ul><ul><ul><li>Co-investors invested in all financing rounds since the first close. We have successfully leveraged our investments by more than 4 to 1 through successful syndication with other qualified investors. </li></ul></ul><ul><li>We said we would balance the portfolio between IT and Life science and we would concentrate our efforts in communities in the upper Midwest. </li></ul><ul><ul><li>Of the 10 companies in our current portfolio, 6 are IT or software related and 4 are life science or healthcare related. </li></ul></ul><ul><ul><li>Five currently reside in Illinois, 3 in Michigan, 1 in Indiana and 1 in Washington (as a result of a merger). Three of the 4 deals in our pipeline are life science related. One is in Cincinnati; 2 in Michigan and 1 is co-located with us in Chicago for now. </li></ul></ul>
    8. 8. Portfolio Companies Electronic systems level design tool to help chip designers to dramatically reduce design times of complex electronic chips Productized/Packaged systems integration solutions Three-dimensional optical tweezers Mobile resource management software solution to optimize and manage dynamic information. Growth factor based therapies Sophisticated briefing service Enabling tools for genome research and personalized medicine Sensor validation and fault detection Web-based collaborative corporate training for profit enhancement Novel therapies for auto-immune diseases
    9. 9. <ul><li>ADM </li></ul><ul><li>Borgess Health Alliance </li></ul><ul><li>Bronson Health Care Group </li></ul><ul><li>Bradley University </li></ul><ul><li>Caterpillar, Inc. </li></ul><ul><li>The Dow Foundation </li></ul><ul><li>Duchossois Technology Partners </li></ul><ul><li>Illinois Central College Foundation </li></ul>Strategic Limited Partners <ul><li>Kalamazoo Community Found </li></ul><ul><li>Methodist Medical Center </li></ul><ul><li>National City Bank </li></ul><ul><li>Purdue University </li></ul><ul><li>Silicon Valley Bank </li></ul><ul><li>Southwest Michigan First </li></ul><ul><li>University of Cincinnati </li></ul><ul><li>University of Chicago </li></ul>
    10. 10. <ul><li>4-5 representatives from major LPs: </li></ul><ul><ul><li>Herbert (Ted) Doan-Dow Foundation </li></ul></ul><ul><ul><li>Timothy Lathe-National City Bank-Kalamazoo </li></ul></ul><ul><ul><li>Gerald Siegert-University of Cincinnati </li></ul></ul><ul><ul><li>Douglas Stewart-National City Bank-Peoria </li></ul></ul><ul><li>Duties/Relationship: </li></ul><ul><ul><li>Meet annually </li></ul></ul><ul><ul><li>Conflict of interest resolution </li></ul></ul><ul><ul><li>Review strategy and valuations </li></ul></ul><ul><ul><li>Not paid, but expenses reimbursed </li></ul></ul>LP Advisory Board
    11. 11. <ul><li>Partner with Midwestern Universities and communities to create start-ups from world class technology </li></ul><ul><li> Apply Time-tested Traditional VC Disciplines to: </li></ul><ul><ul><ul><li>Identify Platform Technologies </li></ul></ul></ul><ul><ul><ul><li>Create Patent Strategy </li></ul></ul></ul><ul><ul><ul><li>Recruit the CEO </li></ul></ul></ul><ul><ul><ul><li>Identify and Quantify the Market </li></ul></ul></ul><ul><ul><ul><li>Create the Business Model </li></ul></ul></ul><ul><ul><ul><li>Recruit BOD and SAB </li></ul></ul></ul><ul><ul><ul><li>Raise $$$$ </li></ul></ul></ul><ul><ul><ul><li>Manage to Milestones </li></ul></ul></ul>ARCH Model
    12. 12. Investment Focus Pre-Seed <ul><li>Raw </li></ul><ul><li>Technology </li></ul><ul><li>Technologist / </li></ul><ul><li>founder/business development </li></ul><ul><li><$500K </li></ul><ul><li>Identifying technology via relationships </li></ul><ul><li>Determining commercial viability </li></ul><ul><li>Accessing rights/Recruiting CEO </li></ul>Seed Early Stage Mid-Stage Exit Description Team $ Needed Keys to Success <ul><li>Product-in-development </li></ul><ul><li>Plus first senior mgmt team member </li></ul><ul><li>$250K to $1M </li></ul><ul><li>Finding development partners </li></ul><ul><li>Developing business strategy </li></ul><ul><li>Recruiting BOD & SAB </li></ul><ul><li>Product at beta clients </li></ul><ul><li>Senior mgmt team formation </li></ul><ul><li>$1M to $5M </li></ul><ul><li>Growing the sales pipeline </li></ul><ul><li>BOD and SAB in place </li></ul><ul><li>Full customer pipeline </li></ul><ul><li>Senior mgmt team in place </li></ul><ul><li>$2M to $20M </li></ul><ul><li>Managing growth </li></ul><ul><li>Becoming profitable </li></ul><ul><li>Identifying exits </li></ul>Focus <ul><li>Business Expansion </li></ul><ul><li>Public Markets </li></ul>Accelerating New Business Growth
    13. 13. Relationships with Premier Midwest Institutions Investment Focus Michigan <ul><li>Western Michigan University </li></ul><ul><li>Kalamazoo College </li></ul><ul><li>Michigan State University </li></ul><ul><li>University of Michigan </li></ul><ul><li>Wayne State University </li></ul><ul><li>Kalamazoo Valley CC </li></ul><ul><li>Van Andel Institute </li></ul><ul><li>Ohio State University </li></ul><ul><li>University of Cincinnati </li></ul><ul><li>Battelle Institute </li></ul><ul><li>Indiana University </li></ul><ul><li>University of Notre Dame </li></ul><ul><li>Purdue University </li></ul><ul><li>Rose-Hulman Institute of Technology </li></ul><ul><li>Argonne National Laboratory </li></ul><ul><li>Bradley University </li></ul><ul><li>National Center for Ag Utilization </li></ul><ul><li>Illinois Central Collage </li></ul><ul><li>Northwestern University </li></ul><ul><li>University of Illinois </li></ul><ul><li>University of Chicago </li></ul><ul><li>University of Wisconsin </li></ul><ul><li>Medical College of Wisconsin </li></ul><ul><li>University of Minnesota </li></ul><ul><li>Mayo Clinic </li></ul>Minnesota Wisconsin Indiana Ohio Illinois
    14. 14. Relationships with Early-Stage Midwest VCs Investment Focus Michigan <ul><li>Avalon/Ardesta </li></ul><ul><li>EDF Ventures </li></ul><ul><li>Essex Woodland </li></ul><ul><li>North Coast Technology </li></ul><ul><li>Sloan Ventures </li></ul><ul><li>Tullis-Dickerson & Co. </li></ul><ul><li>Waypoint Ventures </li></ul><ul><li>White Pines Ventures </li></ul><ul><li>Blue Chip </li></ul><ul><li>Isabella Capital </li></ul><ul><li>River Cities Capital </li></ul><ul><li>SenMed Medical Ventures </li></ul><ul><li>Centerfield Capital </li></ul><ul><li>CID Equity Partners </li></ul><ul><li>Gazelle TechVentures </li></ul><ul><li>Spring Mill Venture Partners </li></ul><ul><li>ARCH Venture Partners </li></ul><ul><li>Dodi Management </li></ul><ul><li>Duchossois Technology Partners </li></ul><ul><li>JFM Enterprises </li></ul><ul><li>KB Partners </li></ul><ul><li>Kettle Partners </li></ul><ul><li>Open Prairie </li></ul><ul><li>Prism </li></ul><ul><li>Ravenswood Capital </li></ul><ul><li>William Blair New World Ventures </li></ul><ul><li>Mason Wells </li></ul><ul><li>Venture Investors </li></ul><ul><li>Coral Ventures </li></ul><ul><li>Mayo Medical Ventures </li></ul>Minnesota Wisconsin Indiana Ohio Illinois
    15. 15. <ul><li>Raise $50-75 million (with SBIC leverage) to assure adequate resources to: </li></ul><ul><ul><ul><li>Do the work of seed investing </li></ul></ul></ul><ul><ul><ul><li>Follow-on in winners </li></ul></ul></ul><ul><ul><ul><li>Avoid dilution </li></ul></ul></ul><ul><li>Exit through sales or IPOs </li></ul><ul><li>Achieve 30%+ net annual IRR </li></ul>Financial Strategy Financial Leverage
    16. 16. <ul><ul><li>Determine product focus </li></ul></ul><ul><ul><li>Perform the early proof of concept experiments </li></ul></ul><ul><ul><li>Establish relationships with probable strategic partners </li></ul></ul><ul><ul><li>Negotiate license or partial sale to strategic partner </li></ul></ul><ul><ul><li>Reserve $$ to comply with the terms of the license/sale </li></ul></ul><ul><ul><li>Dividend the balance to all shareholders ratably </li></ul></ul><ul><ul><li>Keep as much of the team together as possible </li></ul></ul><ul><ul><li>Determine the next most probable product </li></ul></ul><ul><ul><li>License in new technology if necessary </li></ul></ul><ul><ul><li>Raise new $$ to develop new products </li></ul></ul><ul><ul><li>Position for ultimate exit </li></ul></ul>Financial Strategy Early Exits
    17. 17. <ul><li>Total investment dollars are falling, with the Midwest falling disproportionately ( 2002 PWC Moneytree) </li></ul><ul><li>California still gets almost half the money ( PWC 2002 Moneytree) </li></ul><ul><li>Midwest funds continue to invest most of their money outside the Midwest ( 2002 PWC Moneytree) </li></ul><ul><li>Grant money continues to flow into the Midwest (2 nd largest region) ( 2001 DRI-WEFA) </li></ul><ul><li>IPO markets are quiet (e.g. 6 bio deals in last 9 months) </li></ul><ul><li>Acquisitions continue at same historic pace (excluding 1999 and 2000 boom years), only valuations are lower ( 2002 PWC Moneytree) </li></ul><ul><ul><li>e.g., acquisition market looks healthy in EDA (6 largest players acquired 6 companies in last year for $100’s of millions each). Five IPO’s in 2001 - 2002 ( Internal EDA market research) </li></ul></ul><ul><ul><li>e.g., pharmaceutical M&A actually rose in 2001 versus 2000 and recent activity continues to be strong ( 2001 PWC Pharmaceutical Insight Report and recent internal market data) </li></ul></ul>Financial Strategy Current Market
    18. 18. <ul><li>Three principals have started > 35 companies </li></ul><ul><ul><li>40% biotech/healthcare, 30% IT/software, 30% other </li></ul></ul><ul><ul><li>> 20 exits, majority positive, 6 IPOs </li></ul></ul><ul><li>Virtually all based on university technology </li></ul><ul><li>Principals take active role recruiting CEO, setting strategy, implementing business model </li></ul><ul><li>Combined net annual IRR > 30% </li></ul>Financial Strategy Track Record
    19. 19. <ul><li>Seeking $2-5 million dollar investments from strategic limited partners </li></ul><ul><li>Final close 7/02 extended to 12/02 </li></ul><ul><li>80/20 profit split between LPs and GPs </li></ul><ul><li>2.5% management fee </li></ul><ul><li>SBIC leverage may provide additional follow-on funds </li></ul>Summary of Partnership Terms