Third Rock Ventures has raised $770 million for its fifth fund. The investment vehicle, the largest ever raised by Third Rock, will support investments in 10 to 12 companies.
Across its first four funds, Third Rock raised around $2 billion, equipping it to play a leading role in the formation and growth of biotechs including Editas Medicine and Relay Therapeutics. Unlike some other investors, Third Rock likes to get involved early in the drug development process by building biotechs around research-stage projects and putting up significant funds in return for sizable stakes.
With the fifth fund pulling in 25% more than its predecessor, Third Rock is equipped to double down on that philosophy and retain large stakes for longer.
“If we can hold on to those companies as the sole investor or the predominant investor, we think we can get much higher up on the value-creation curve,” Robert Tepper, one of Third Rock’s founders, told Bloomberg.
Spread evenly across 10 to 12 companies, the fifth fund would support investments of up to $64 million to $77 million in each startup it backs. Given the fund is unlikely to be divvied up so evenly, Third Rock will in practice be able to put even more into select startups, enabling it to fund them up to key milestones without significant support from other investors.
However, the biotechs Third Rock backs won’t be able to stretch the money as far as in the past. Third Rock’s portfolio is skewed toward the Massachusetts biotech hub. Many of the companies it backs outside of its own state are based in and around San Francisco.
Competition for space and talent makes these areas increasingly expensive places to build biotechs. As such, Tepper said Third Rock needs more money just to keep pace with the rising operating costs of its portfolio companies.
Third Rock is willing to put up more money in the belief the returns will justify the outlay. That view is supported by the fund’s track record. According to the California Public Employees' Retirement System, Third Rock’s first fund achieved an investment multiple of 3.7. By that metric, the fund outperformed all bar one of the 116 investment vehicles tracked by the program.