Monday, September 17, 2007

A New VC On The Block. Finally!

News of Third Rock Ventures closing on its new $378 million fund got us thinking. It’s been a long, long time since a new potentially top-tier venture firm has hit the scene.

No offense to firms like Clarus Ventures or New Leaf Ventures. True, both raised their first funds over the past few years and both will try to raise follow on funds over the next few months. (Clarus will go out later this year. New Leaf is out, according to VentureWire LifeScience.)

But neither of those firms presented new stories. Clarus split from MPM Capital. New Leaf Ventures was an off-shoot of Sprout Group. Their teams and strategies were largely the same.

So IN VIVO blog is more than a little excited at the formation of Third Rock for a few reasons. First, the name is cool (kudos to partner Robert Tepper). Second, the strategy is unique and very ambitious. Third, limited partners lined up quickly behind a concept story that is has a fair chance for success given the team but is by no means a slam dunk. A new life sciences venture firm hasn't generated this much buzz since Care Capital in 2000.

It's worth noting that Third Rock’s success comes amid some bad news in the venture industry overall. Venture capital fund-raising, according to VentureOne, is way down. Venture capital firms raised $6.3 billion over the first six months of the year. If that pace continues—and second halves don’t typically exceed first halves—the $13 billion total would be the second or third lowest total in the past 10 years, matching the 2002 tally. Only 2003 stands out as the worst year with $9.9 billion raised. More recently, limited partners over the past two years have committed $25.3 billion and $24.7 billion in 2005 and 2006, respectively. So a $13 billion finish would be an enormous disappointment.

Also, there's been particular bit of bad news for many venture funds--namely, they don't exist any more. Check out this analysis by OVP Venture Partners. It suggests that there are half the VC firms around today than there was in 2000. Not really suprising, but an interesting study.

But the life sciences have largely been immune to this bad news. We haven't had any signficant blow up of venture firms, except the break up that created Clarus and MPM. But no significant firms are dissolving, giving back money or even falling on hard times.

Check out the fund-raising for the past few years. Our industry's top tier firms have done exceptionally well in fund-raising: Alta Partners, Clarus ($500 million), MPM ($550 million), SV Life Sciences ($572 million), Abingworth($587 million) Essex Woodlands Health Ventures ($600 million) and, of course, Domain Associates ($700 million.)

The good times should continue to roll for the industry's blue-chip. Clarus and New Leaf will get their capital. Meanwhile, IN VIVO Blog was told that Frazier Health Care Ventures shouldn't have much trouble securing the $600 million it'll be seeking for its new fund. And can Versant Ventures and Prospect Venture Partners be far behind? Both last raised their funds in 2004, so if they're not out this year expect them to be raising money in 2008 (probably along with Delphi Ventures as well.)

Meanwhile, we're anxious to see what Third Rock Ventures will be able to do.

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