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