By Sean Wolfe

Life sciences venture firm MPM Capital announced Monday it had closed its fourth fund at $550 million, a step back for the Boston-based firm that was rocked by the departure of six key executives in 2005.

MPM’s last fund, a $940 million whopper in 2002, gave the firm bragging rights to “biggest life science fund” ever raised. But MPM was shaken when a handful of managing directors bolted to found rival Clarus Ventures.

“We have something to prove this time around,” said Luke Evnin, managing director at MPM. “The LPs had to learn some new names and new faces, and that took some time.”

Ultimately, it took the full nine months to raise the new fund, a big change. Its first fund which raised $230 million in 1997 was the largest biotech venture fund at the time. That was eclipsed by its second fund, which quickly hit $600 million in 2000 and allowed MPM to retain its heavyweight title. MPM third fund swelled to a record $940 million.

MPM’s latest fund has been outstripped by a handful of larger rivals.In January, international life sciences investment firm Abingworth raised $600 million dedicated to life sciences investing in Europe. And in February, SV Life Sciences raised its fourth fund at $570 million, surpassing MPM.At least the firm can claim it remains larger than Clarus Ventures, which raised $500 million last December.

Scaling back was a necessary change in strategy, Mr. Evnin said, in part because the firm’s third fund went to more small deals than anticipated.

“That put pressure on.We have 37-plus companies in our fund three portfolio. If we did the same thing, that would be too big to manage year-in and year-out. You don’t want to be on ten, going on fifteen boards,” he said.

So why not make the partnership bigger? Culture and size, he explained.

“The whole issue of partnership dynamics comes in when you think about scaling up. You really can’t have 20 partners at the table and still have a good discussion,” he said.

James Clarke, head of private equity for the Kauffman Foundation, was among the limited partners who tripled his prior investment in MPM for this new fund.He said initially, the 2005 departures of MPM managing directors Robert W. Liptak, Dennis Henner, Nicholas Simon, Michael Steinmetz, Kurt Wheeler and Nicholas Galakatos were cause for concern.

“That rattled us, honestly,” he said. “But at the end of the day, it was clear there were a number of super smart guys in both camps. It was also clear that Luke (Evnin) and Ansbert (Gadicke) weren’t going to be content to live off past successes,” he said.Mr. Clarke said he was also reassured by MPM’s approach to the life sciences market, as well as its remaining GPs and those who moved up the ranks.

“They have a fully rounded view of the entire cycle—from soup to nuts. And they probably have the strongest scientific advisory board I’ve ever seen,” he said.

But when it came to choosing between the new MPM, and the Clarus teams, Mr. Clarke didn’t play favorites, and took stakes in both firms.