Changes Afoot At MPM Capital

MPM Capital, a Boston-based VC firm focused on life sciences investing, has confirmed longstanding rumors that it will make changes to its partnership before raising another fund. The moves are expected to occur by early 2006, at the latest, as MPM Capital already has committed nearly 75% of its $900 million third fund.

;The group of partners who raised [MPM BioVentures II] as a team will change as we roll into subsequent funds,” says Luke Evnin, a San Francisco-based general partner with MPM Capital, without providing specific details. He adds that the firm remains focused on its current investment activity.

Others familiar with the situation, however, have been more descriptive. Five different sources tell PE Week that MPM Capital will split into two separate firms, with Evnin and founder Ansbert Gadicke retaining the MPM Capital name for a late-stage venture capital effort that also would include some public investing (the firm currently makes PIPE transactions through its $400 million MPM BioEquities Fund). Another group of partners would form a firm devoted to more traditional venture capital investing, including some early-stage activity. Both groups would maintain their life sciences focus.

One VC who has co-invested with MPM Capital says that the persistent breakup rumors are “unsettling.” He says that his firm and other co-investors are directly affected because of several unanswered questions surrounding an expected split. “If I have a GP from MPM on my deal, then who’s going to be the replacement?” the source asks. “And how committed to the portfolio company is that person going be and how is that going to affect the company? It’s easy when it’s just one person leaving a firm, but when changes happen to an entire firm, it causes concern.

The VC added that MPM Capital is a valued partner with “deep pockets” and “some very smart people.” Moreover, he notes that it’s a good thing that the issues are resolved now, before MPM Capital goes on the fund-raising circuit.

The split apparently has been triggered by a variety of factors, including divergent investment strategies, compensation concerns and inter-personal team dynamics.

;It’s impossible to do regular VC deals, particularly early stage ones, if you’re investing out of a $900 million or a $1 billion fund,” says another source at a rival VC firm that focuses on the life sciences sector. “There are some people there who want to return to that type of investing, without having to push up against MPM’s high minimum [capital] requirements.

Evnin and Gadicke reportedly receive a disproportionately high percentage of MPM Capital’s management fees, which has generated some backroom grumbling. Add to that an entire office full of Type “A” personalities – Gadicke’s being the most notable – and a parting of the ways is not surprising.

Evnin declined to discuss even the possibility of a split, as did GP and CFO Robert Liptak and senior advisor Shari Annes (Liptak and Annes declined any comment about MPM’s partnership structure).

MPM Capital’s third fund, raised in 2002, featured an IRR of 2.3%, as of Sept. 20, 2004, according to the California Public Employees’ Retirement System (CalPERS). It is important to note, however, that the fund was only about 37% called-down, as of that date, and that it subsequently has exited, or has agreed to exit, such investments as InterCell AG (via an IPO) and Idun Pharmaceuticals (to be bought by Johnson & Johnson).

CalPERS also reported that MPM Capital’s second fund, raised in 2002, had a net IRR of -5.9% as of Sept. 30, and that it was over 91% called-down.


Lawrence Aragon also contributed to the reporting of this story.