entertainment

This article is adapted from the 2023 edition of STAT’s annual report, “Ranking biotech’s top venture capital firms.”

Venture capital firms are notoriously guarded about the kind of financial returns they get back from an individual deal, let alone how well their entire fund is performing. But information about which firms’ portfolios have shown the best performance is crucial for investors, biotech companies and analysts, especially in a year of economic downturn.

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In the fourth annual edition of STAT’s “Ranking biotech’s top venture capital firms,” released this week, we dig deep to show not only which firms’ portfolios of past investments have best weathered the economic storm but how the disturbance is affecting the new investments they’re making or the new funds they are raising. 

The report assesses returns for 18 firms that invest in biotech companies. STAT’s rankings are based on data obtained through public records requests and reflect the status of companies near the end of the previous year — in the case of the 2023 report, September 2022. The 2022 data highlights signs of strain from the ongoing market downturn, and looks at how firms have done.

ARCH Venture Partners, the long-running investment firm that in recent years has dedicated itself to backing biotechs with grandiose plans, is no stranger to the top tiers of STAT’s VC rankings, but in this year’s rankings it moved into first place. Alta Partners and Flagship Pioneering earned second and third place in the rankings.

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ARCH is one of the most seasoned biotech VC firms in the country. It was founded in Chicago more than 30 years ago and is still led by two of its co-founders: Bob Nelsen and Keith Crandell. It has brought in three new partners in the last year.

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The firm has invested in a wide variety of startups, from companies making blood tests that seek out early signs of cancer to biologic manufacturing facilities to genetic medicine developers.

 A successful VC firm might promise to triple an investor’s money. On that count, ARCH has delivered: For every dollar that third parties — groups like university investment arms or teacher’s union pension funds — gave ARCH to invest in biotech startups, the firm handed back between $1.26 and $5.15. 

Alta, which is in the process of raising a new $250 million fund, returned between $0.99 and $3.92 for every dollar that outside investors put into its funds. Flagship’s returns are even more varied: One fund that was raised in 2004, Flagship Ventures Fund 2004, didn’t hand over any returns to investors. But the firm’s 2010 fund — which invested in Moderna, among other companies — has had one of the most meteoric rises of any fund STAT has surveyed. Limited partners in Flagship Ventures Fund IV reported that the fund returned $21 for every dollar invested.

Frazier Life Sciences joined STAT’s ranking this year, sliding into the 16th spot on the list. The group is part of Frazier Healthcare Partners, a Seattle-based private equity firm that invests in early-stage startups and growing health care companies, while also acquiring ownership stakes in established commercial companies that it can retool.

Firms often set a 10-year lifespan for an individual fund, giving them time to scout out startups, invest the money, and wait for those companies to reach a financial inflection point like an IPO or acquisition that will enable investors to reap their proceeds. ARCH has several decade-old funds that have performed exceedingly well, including its 7th and 8th funds which, respectively, quintupled and tripled investors’ money. 

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Meanwhile, Frazier’s sixth fund, which was raised in 2007, the same year that ARCH raised its 7th fund, returned $1.50 for every dollar that was invested. 

ARCH’s return results are generally in line with what was reported for ARCH in STAT’s 2022 rankings report. But the slowdown in IPOs, a tougher stock market, and rising interest rates tripped up some other firms, allowing ARCH to pull ahead in the ranking. (ARCH was an early investor in one of the few biotechs to go public in the last 12 months, the genetic editing company Prime Medicine.)

Nelsen told STAT that ARCH’s team doesn’t watch how its investments are performing with an eagle eye. They only analyze the data when they set out to raise a new fund, as the firm did in both 2021 and 2022, and instead focus on the startups they’re developing. 

“Numbers, especially unrealized returns, come and go. We focus on the fundamentals of investing in great platform science that can prevent disease or make curative or disease-modifying medicines. Make progress in fixing disease and you will make money eventually,” Nelsen said. 

Kate Sheridan contributed reporting.