Riding high on a string of successful exits, Arch Venture Partners said Wednesday it closed its eighth fund with more than $400 million in subscriptions, exceeding its $250 million target by more than $150 million. The venture capitalist (VC) traditionalist plans to deploy the fund exclusively in early stage technologies it believes will fundamentally change the health care, energy and materials sectors.

In the health care space, Arch will be prioritizing investments in companies working on neurodegenerative diseases, including Alzheimer's, Parkinson's and amyotrophic lateral sclerosis, as well as looking for opportunities to back companies addressing mental health needs around cognition, depression, schizophrenia and autism, Robert Nelsen, co-founder and managing director of Arch, told BioWorld Today.

Fund VIII is the firm's largest fund since it was first founded in 1986 to commercialize technology out of the Argonne National Laboratory and University of Chicago, which gave the firm the name and builds on the success of Fund VII, which closed in 2007 with $400 million.

Investors have been pouring money into U.S. venture firms this year, with $7.4 billion in new commitments from 78 funds during the second quarter of 2014, according to Thomson Reuters and the National Venture Capital Association. That's a 24 percent increase compared to the number of funds raised during the first quarter and marks the strongest quarter for the number of funds raised since the fourth quarter of 2007.

Investors are embracing funds that are willing to take big risks, said Nelsen. "We heard very often during the fund raise, 'If we wanted to back somebody that could make a 1x to 2x fund, we'd just put all our money in private equity and hedge funds,'" said Nelsen. "They tended to gravitate toward strategies that were more swing-for-the fences strategies, which is really what Arch is about. We don't do singles and doubles. We're swinging for the home run in every deal."

Swinging for the fences can have its downsides, of course. "You have to make errors. Otherwise you're not taking enough risk." Arch's solution to managing that risk is placing bets on players with multiple platform projects, any one of which can make the company while allowing for failures that won't kill a whole company. Agios Pharmaceuticals Inc., for instance, has three phase I programs in its pipeline, including the recently launched test of AG-348, its first clinical program in inborn errors of metabolism, and the Celgene Corp.-partnered AG-221, an experimental treatment of patients with acute myelogenous leukemia that harbor an isocitrate dehydrogenase-2 mutation, which was recently fast-tracked by the FDA. (See BioWorld Today, April 18, 2014.)

"When we're looking at these spaces, whether it's the cure for cancer or Alzheimer's or making natural gas into oil, we look at the fundamental technology," Nelsen said.

During the past 24 months, portfolio companies in Arch funds have had nine public offerings and six M&A events, including four oversubscribed biotech initial public offerings with Kythera Biopharmaceuticals Inc., Receptos Inc., Bluebird Bio Inc. and Agios. Additional exits include Ikaria Inc., Ahura Scientific, Decode Genetics, Sage Therapeutics Inc., Fate Therapeutics Inc., Bind Therapeutics Inc., Crystal IS and Achaogen Inc. (See BioWorld Today, Oct. 12, 2012, May 10, 2013, June 20, 2013, and July 25, 2013.)

The company's most recent bets in the life sciences sector have included Juno Therapeutics Inc., which Arch originally funded with the Alaska Permanent Fund, the bioenergy company Siluria Technologies Inc., 908 Devices, Ventirx Pharmaceuticals Inc., Agbiome Inc. and Twist Biosciences Corp. (See BioWorld Today, Dec. 5, 2013.)

As Nelsen looks ahead to the next five to 10 years for venture, he said what the firm is looking for is likely to remain the same, but the execution of investments is likely to change. "We tend to be bringing more money into the deals and circling up the long-term investors early in the process, eliminating the later-stage venture rounds by syndicating with one or two venture firms in the series A, then moving to other long-term investors once we've shaken a little risk out of the company," he said.

"Bringing those long-term investors in allows you to take even more risk. And, perversely, taking more risk, such as by taking in more projects at once, actually reduces the risk of failure."