03/17/2010

Greylock Heritage Key for Third Rock Pitch

Third Rock Ventures is raising capital for its next fund.

The Boston firm, which invests in early-stage life-science companies, hopes to collect $400 million to $500 million for its Third Rock Ventures 2. Early indications are that it could reach that range in short order, based partly on prior backing from well-regarded venture capital manager Greylock Partners.

Greylock was among investors in Millennium Pharmaceuticals, the drug company where Third Rock founders Mark Levin, Kevin Starr and Robert Tepper worked until setting out on their own in 2007. In an unusual display of confidence, the San Mateo, Calif., shop then supplied a large chunk of capital for the trio's first fund - apparently in exchange for a slice of fees.

Greylock's endorsement clearly carried considerable weight with other investors, as Third Rock raised a total of $378 million for the 2007-vintage vehicle. Market players think that cachet will carry over to the new offering as well.

Greylock cruised through its latest marketing campaign, beating the $500 million equity target for its Greylock 13 fund by $75 million despite investor concerns about divisions of labor at the firm. As one source put it, Greylock usually has to do little more than send a fax to existing limited partners to raise most of the capital it needs.

As for Third Rock, its marketing push has elicited an offbeat response from some backers. That is, they have asked at least two other life-science-focused fund managers for opinions of the shop. Why go to the firm's apparent rivals for that information? The operation is still fairly new, and hasn't exited enough deals to build up a meaningful performance record. The inquiries are rankling some venture capitalists. "What can [we] say but [Levin] and the team over there did a good job at Millennium?" one said.

Levin served as chief executive of Millennium while also holding a top position at venture capital shop Mayfield Fund. Starr and Tepper were senior executives at Millennium, a Cambridge, Mass., developer of cancer treatments that was taken over by Takeda Pharmaceutical in 2008.