MPM Nails Year’s Biggest Venture Fund –

Despite dismal economic times necessitating a yearlong fund-raising effort, Boston-based MPM Capital LP successfully closed its BioVentures III fund in the final month of the 2002. The $900 million fund is the largest pure venture fund raised last year, and it brings total funds under management by MPM to $2.1 billion. BioVentures III is the third in a series of health care-dedicated funds raised by the company. The $230 million BioVentures I was raised in 1997 and is about 95% invested. The $600 million BioVentures II closed early in 2000 and is fully committed, with a significant amount of capital in reserve for follow-on rounds.

Ansbert Gadicke, founding general partner at the firm, says MPM wanted its third fund to be large. “It was designed to insulate portfolio companies from the uncertainties of the market,” he says. “It is clear that even when a more robust market returns, companies will have to live with volatility. With a larger fund, we can insulate our investments from a degree of market uncertainty.”

The strategy behind BioVentures III is similar to that of BioVentures II, that is a 3.5 to four-year commitment cycle with approximately 45 investments. Dennis Henner, a general partner at the firm, says BioVentures III will focus on biotechnology products, platforms and medical technology.

The fund is a precedent setter in more than its size: It has no development stage limits and will invest between $5 million and $60 million in a company, with the average investment being $15 million to $25 million. “We plan to invest across the spectrum, from early-stage to late-stage investments, and our [intent] is to be a global fund, with 15% to 20% of our investments in Europe and Asia,” Henner says. “We will also be looking into investments in publicly traded companies.” While the fund will not discriminate based on stage, it will lean toward companies that can bring products to the “significant milestone” of Phase II clinical trials. “If the public market opens, that kind of company could be taken public or a partner deal could happen at that point,” Henner says.

Apparently MPM BioVentures III’s LPs felt comfortable with the size of the fund and its strategy-despite the billions of dollars returned to LPs by other firms last year. “We certainly answered a lot of questions from our LPs,” concedes Henner, “but we feel confident and are comfortable investing about $250 million per year, with our seven partners each doing two deals per year.” The firm plans to reserve a significant amount of money for follow-on investments.

Although Henner would not disclose all of the fund’s limited partners, he says they include the California Public Employees’ Retirement System (CalPERS), Canadian Pension Plan, Danske Private Equity Partners, Grove Street Advisors, Itochu Corp. and Winterthur Life & Pensions. Additionally, about 80% of the fund’s LPs are institutional investors from prior funds and about 40% are European.

It’s worth noting that MPM took money from CalPERS when the public pension fund was embroiled in a transparency lawsuit with the San Jose Mercury News. (The suit has since been settled.) “We took the FOIA [Freedom Of Information Act] issue into account and we are keeping close contact with our limiteds on the issue,” Henner says. “We’re not so concerned with our IRR being released. Our major concern is making sure that private company information stays private, but beyond that we can work with wherever this leads.”

By virtue of this most recent fund’s size, MPM expects to be the lead investor on the deals it participates in. To date, the fund has investments in Aryx Therapeutics Inc., a Santa Clara, Calif.-based company focused on the retro-metabolic design of therapeutic products; Tercica Medica, a San Francisco-based company focused on developing and commercializing therapeutics for hormone-based diseases; and CHF Solutions, a Minneapolis-based medical device company focused on managing fluid overload experienced by congestive heart failure patients.