Third Rock Ventures, a Boston venture capital firm, has closed a new $516 million fund and plans to begin investing in innovative life-sciences start-ups in the next couple of months.
The fund is Third Rock’s third and biggest to date, bringing the total it has raised over the past six years to about $1.3 billion.
Third Rock raised the money for its new fund in just five months, company executives said Monday.
“It’s impressive because there’s been a contraction in the institutions and individuals who are interested in putting big money into those funds in the past few years,” said Kevin Gorman, managing partner of Putnam Associates, a life-sciences consulting firm in Burlington. “This could be a sign that some of that is starting to turn around.”
Gorman said investors have pulled out of life-sciences funds because they have not generated big enough returns.
But Third Rock, one of the largest venture capital firms targeting the health care sector, has an unusual model for investing, often preferring to launch companies rather than to fund existing companies.
The firm scours journals and interviews researchers to identify promising technologies and scientific research and then build companies around them.
The firm received 982 plans from start-ups last year and invested in just one. In contrast, it aims to create four to five companies in-house every year.
This approach, said Kevin Starr, a Third Rock partner, has “allowed us to create some game-changing companies at the forefront of medicine, and it appeals to investors.”
Third Rock, for example, put up $47 million last month to launch the Cambridge cancer immunotherapy start-up Jounce Therapeutics Inc.
Jounce intends to develop drugs that can harness the immune system to attack cancerous cells, sometimes in combination with other medicines.
Third Rock also launched Foundation Medicine Inc. in Cambridge, which enables doctors to send in a biopsy of a patient’s tumor and have its genetic makeup analyzed.
Foundation has raised nearly $100 million, $13.5 million of it from a collection of investors that included the founder of Microsoft Corp., Bill Gates.
Investors such as Gates show the promise of the company, its technology, and its potential to generate returns, Starr said.
Foundation is one of three Third Rock-backed companies that analysts say could launch initial public offerings this year to sell shares on public stock exchanges.
The other companies are Agios Pharmaceuticals Inc., a Cambridge company developing cancer drugs, and bluebird bio, also of Cambridge, which develops genetic therapies.
“We’re excited this model seems to be working, and the investors have been showing a lot of enthusiasm for helping us help patients,” Starr said.
“It shows that if you really make a big difference for patients, the economics will take care of themselves.
Third Rock has invested in 31 health care companies in biopharmaceuticals, medical devices, or diagnostic technologies, including 22 in the Boston area.
Third Rock plans to use its new $516 million fund over the next two to three years to invest in 16 additional companies, most of them in the Boston area.
Third Rock and its portfolio companies have 654 total employees, 528 of whom are in Greater Boston.
Starr said their companies take about 10 years to turn an idea into a product that’s ready for market.
When the firm identifies new ideas, they are tested and analyzed for at least three years before a company is formed.
The firm then puts together a management team to oversee the company and its product development for at least the first 12 to 18 firstname.lastname@example.org.