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VCs Buoyed by Stem Cell Ballot Win

While the country is split about the results of last week’s presidential election, VCs were united in their joy at the success of California’s Proposition 71, an initiative that will boost stem cell research in the Golden State.

Venture capitalists agree that Prop. 71 will translate into a financial win for their industry, though many warn not to look for an overnight, VC-fueled stem cell boom.

The initiative was created after the Bush Administration enacted a policy in 2001 that barred the National Institutes of Health (NIH) from doling out grants to support stem cell research that involved the destruction of human embryos. Stem cell research then became a key issue during the presidential campaign, and VCs generally favored Sen. Kerry’s position over that of President Bush.

But Prop. 71 will raise $3 billion through bonds to fund stem cell research in California over the next 10 years through the authority of the California Institute of Regenerative Medicine. Republican Gov. Arnold Schwarzenegger – as well as a coalition of scientists, educators and business leaders – backed the initiative. Venture capitalists took a particular interest in the proposition, donating much to the cause.

VC donors to an organization called Yes on 71: Coalition for Stem Cell Research and Cures may very well have made the difference in passing the initiative overwhelmingly (59% in favor), after an earlier poll indicated a more evenly divided electorate.

According to documents filed with the California Secretary of State, VC donors to the organization included Brook Byers, John Doerr and Vinod Khosla of Kleiner Perkins Caufield & Byers; William Draper of Draper International; J. Taylor Crandall of Oak Hill Capital Management; Michael Gordon of Meritech Capital; Jonathan Fieber of Mohr Davidow Ventures; and Philip Schlein of U.S. Venture Partners.

Jim Breyer, managing partner with Accel Partners and chairman of the National Venture Capital Association, also donated to the cause. But Breyer doesn’t expect his firm to reap a windfall from any forthcoming research: Accel only invests in information technology companies and has no plans to jump into life sciences to get in on a stem cell deal.

Breyer says that he and other IT venture capitalists backed the initiative because it was the right thing to do and because the VC industry as a whole will benefit, he says.

However, some critics have charged that stem cell research won’t quickly return money to VC investors in time to repay the $3 billion in bonds, plus interest, particularly within the next 10 years.

However, Breyer says that the possible benefits of stem cell research – life-saving medical advances and lower health care costs – were strong reasons for the VC industry to back the measure.

The measurable impact won’t be immediate, says Breyer. “Over the next five to 10 years it absolutely will translate into increased investment opportunities for venture capitalists. There is always a risk that the expectations are simply too high, but at the same time this is a profound program.”