Where are the VCs on stem cell research?
November 6, 2006
In 2001 President Bush opened the flood gates and allowed government funding of stem cell research to the tune of $250MM per year ($1.25B to date). Prior to that there was no federal funding of stem cell research. The only thing we have learned is that spending $1.25 billion on stem cell research doesn’t necessarily create a business opportunity. Less than $40MM has been invested by venture capitalists in stem cell related business ventures since 2001. There just isn’t a business case for investment in the stem cell space. What do VCs know that the Bush administration can’t seem to figure out?
Now the talk in Congress is that MORE federal dollars need to be pumped into stem cell research. This is despite a lack of private investment and wide social and practical criticism. In fact, some criticism has even come from researchers themselves.
For example, in November 2004, Princeton University president and geneticist Shirley Tilghman said, “Some of the public pronouncements in the field of stem-cell research come close to overpromising at best and delusional fantasizing at worst.”[13] Similarly, fertility expert and current president of the British Association for the Advancement of Science, Lord Winston has warned of a public backlash against stem cell research if it fails to deliver on some of the “hype” surrounding potential treatments.[14]
Arnold Shwarzenegger’s Prop 71 earmarks $3 billion for stem cell research that has created an interest in stem cell research companies like Advanced Cell Technology who might be the recipient of a good portion of that $3 billion. The business opportunity IS access to cash from California’s taxpayers ~ not the research which according to Kristen Philipkoski, “the science is promising, no one has proven yet that embryonic stem cells will lead to blockbuster therapies.” Hopefully the American taxpayers won’t create stem cell business opportunities for the private equity community, lets get them to use their own money to do the research…
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The operative word is stem cell RESEARCH. VCs do not underwrite basic science research — that’s actually a role best suited to government.
Why? One reason is that research projects take a long, long time to bear fruit. The lifespan of a VC fund is typically “only” 10 years, which isn’t that long in the context of basic research projects, and remember that many investments are entered in year 4 or 5 of a fund, giving an effetive 5 or 6 year horizon.
Also, there are enough other things that can (and do) go wrong at startups that adding pure science risk is like putting a house of cards on the sand…
what VCs are better suited to do is underwrite DEVELOPMENT projects, not research.
And believe you me, there is enough VC money out there, and enough greedy VCs, that if investing venture dollars into stem cell research could yield the returns our limited partners expect, you’d see tons of investments being made there.
Finally, remember that’s what we’re in the business of doing — earning maximum aggregate returns for our limited partners within a [relatively] limited timeframe.
Exactly my point:
“And believe you me, there is enough VC money out there, and enough greedy VCs, that if investing venture dollars into stem cell research could yield the returns our limited partners expect, you’d see tons of investments being made there.”
I agree. IF there were returns there would be investment.