Investor’s corner: interview with David Cruikshank of ARCH Ventures

DavidCruikshank
November 15, 2019
By Hallie French

In this interview David Cruikshank of ARCH Ventures contextualizes the history of the firm, their investment in the UNC spinout 908 Devices, and explains what they bring to the table for companies that work with them.

Tell us about yourself, your background, how long you’ve been with the firm.

My post-secondary education started with a bachelor’s in mechanical engineering from UCLA and a master’s in operations research and industrial engineering from UC Berkeley. I then worked for approximately 10 years divided between two semiconductor firms with roles as an industrial engineer at Conexant Systems and then as a business development manager at Toshiba. With my eyes on a career transition to investments, I returned to school to obtain an MBA with honors from the University of Chicago. After graduating, I joined ARCH Venture Partners in the Chicago office and have been with the firm for 12 years.

Tell us about Arch in terms of history, industry focus, current funds, etc.

ARCH started in the 1980s as the first commercialization office of the University of Chicago and, by extension, Argonne National Lab, which the university managed. The name ARCH reflects this origin with the “AR” from Argonne and the “CH” from the University of Chicago. ARCH was led by an ex-Baxter executive, Steve Lazarus, who was appointed Deputy Dean of the University of Chicago graduate business school. Steve recruited business school students to be his commercialization officers and he charged them with gathering technologies developed at the university and the lab and then commercializing them via licenses to established companies or to startups that they helped form expressly for that purpose. Steve and his team quickly found that their startup plans were challenged by a lack of available external capital, so they took it upon themselves to create a small venture fund that would provide that capital. ARCH Venture Fund I was launched as a $9 million investment vehicle and it funded 12 startups that the team founded based on technologies from their two constituent institutions. Through hard work, persistence, and a little luck, the fund was a success with 4 of those companies going public, 4 acquired, and 4 written off. Emboldened by this experience, the team left the University in a friendly separation and established an independent venture capital firm, ARCH Venture Partners. As they had done from within the university, ARCH focused its investments on technology platforms, breakthroughs in science with the potential to disrupt multiple markets or even industries. Then and now, ARCH is also typically the first institution capital in its portfolio companies and plays an active role in their formation. Today ARCH manages over $3B over 10 investment funds with the most recent fund, Fund IX, raised in 2017 with $585 million in committed capital.  The main office for the firm is still in Chicago, but ARCH now has offices located in San Francisco, Seattle, Austin, and Dublin, Ireland.

Give us an idea of how many investment opportunities you see in a year and how many of those make it to an actual investment?

ARCH considers thousands of investment opportunities each year. Many of these opportunities are inbound from existing relationships in academia, national labs, research institutes, venture colleagues, strategic partners, prior investments, and entrepreneurs. In addition, ARCH also actively reaches out to find new opportunities. Out of these opportunities, ARCH will make 5-10 new investments per year.

What are the two or three things you look for in doing your first review of a startup?

While there are many criteria that we review, three of the more important ones are the novelty, defensibility, and potential impact of the technology; the size, growth, and adoption potential of the target market; and the strength and commitment of the team.

What stage of company do you typically invest in? How much is a typical first investment and how much capital do you usually invest per deal?

ARCH is focused on companies at the earliest stages of their formation. We typically invest between $0.5 million to $10 million in a first investment and then keep investing during the entire life of the company in the portfolio which is 5-7 years or more. Total capital invested varies widely based on the needs of the company but can be upwards of $50 million.

Firms usually provide more than capital. What is your firm’s “value-add?”

ARCH is quite unusual among venture firms in that we often help co-found our portfolio companies. This can include creating the business plan, establishing the first office, recruiting the team, consolidating and licensing the intellectual property from multiple sources, recruiting board members and advisors, and assembling the initial investment syndicate among other duties. As the company matures, we support the company from our board seat with guidance on tactical and strategic decisions, introductions to customers, suppliers, and partners, reviews of significant business agreements and transactions, syndication for new rounds of financing, and strategy and planning for the exit, either a trade sale or an initial public offering of stock.

Tell us about your investment in the UNC spinout 908 Devices. What attracted you to the investment? What is your current involvement?

While surveying the landscape of innovative technologies in portable mass spectroscopy, we reconnected with Prof. Mike Ramsey and learned that he was in advanced development of a novel high pressure mass spectroscopy (HPMS) technology. We were already familiar with Mike and the strength of his work from a prior investment, Caliper Life Sciences, that we had helped spinout and supported through its IPO. As that company was a great success (it was acquired by PerkinElmer for $600M) we were highly receptive to working with Mike again and commercializing his new technology. After careful review of existing commercial and emerging technologies, we became convinced that HPMS was a novel disruptive technology and, in our view, the foundational technology to uniquely enable handheld mass spectroscopy. We helped spin the company out of the university with seed capital, introduced a strong, experienced management team that we had worked with previously, and built a dedicated investor syndicate for the Series A funding which we led. Since that initial involvement, ARCH has continued its strong support of the company with lead or pro rata investments in each subsequent round of financing, introductions to new investors, customers, and partners, and advice on a wide range of tactical and strategic decisions from its board and observer seats.