Kleiner Perkins Caufield & Byers, a venture capital firm in the Silicon Valley has just bet on adult stem cell research . While the amount of funding is still not known, we do know that they’ve invested in a new Bay Area company, iZumi Bio Inc.

Collaborative work with iZumi and San Francisco based J.David Gladstone Institutes , “will build on breakthrough methods of creating induced pluripotent stem cells which are adult skin cells that can be coaxed to develop into many cell types. These cells might some day help to regenerate injured spinal cords or damaged hearts, scientists hope.

The technology sidesteps the ethical objections raised against research in human embryonic stem cells, which are derived from early stage human embryos that are often destroyed in the process. In addition, the technology may help avoid immune system rejection of replacement tissues, because an adult patient’s cell could be the source of stem cells that are a genetic match to that individual.”

Thane Kreiner, CEO of iZumi had this to say, “We all feel the (induced pluripotent stem cells) technology has the potential to transform the regenerative medicine space.”

CBC has always been interested in encouraging sound ethical biotech investment. I am reposting excerpts from a helpful interview I did with John Garcia, co-founder and managing partner of Angel Strategies, LLC and the co founder and advisor of The Venture Alliance .

Good Bioethics Makes Good Business Sense

Lahl: CBC is always interested in bringing the ethics side of the equation into business. I remember the first time I met you John, was at a VC pitch dinner where I went to pitch ethics, specifically, bioethics. We at the CBC argue that ethics is a necessary part of making good business investments and that ignoring the ethics as part of the due diligence process can often make or break even a good investment. How would you respond to this assessment?

Garcia: I agree. The process of ethics is first dealt with in our prescreening process and then again one last time prior to core due diligence being done. Ethics related directly to the project as well as the management team is considered. It is easy to walk away from an unethical team and harder to walk away from a marginally unethical business plan.

Case in point: A few years back a very savvy team approached us asking for capital to expand their chain of payday loan stores. These stores by law are allowed to loan sums of capital to individuals while collateralizing their next week’s paycheck. The amount which usually looks small, $25.00 per day in fact is extremely high and in most cases is over 500% APR per year. The loophole is in the fact that a small amount of repayment is called interest while the other larger amount is called a transaction fee. In this case a company working within the legal system is in fact taking advantage of consumers and we passed on the investment on ethical grounds.

Lahl: Specifically looking at biotech, just how do you sift through the hype, manage your risk, and decide where your best funding options are?

Garcia: Our group sees over 3500 companies per year and about 20% are biotech or related companies. We have designed a system of questions which the entrepreneur answers on line and which are tailored by vertical, stage and in some cases geography. We have all applicants send us information about their company in the same format in order to avoid having to read business plans and can then judge all companies in the same manner against a common standard. This has allowed us to sift through the hype and find what the companies are lacking in talent and or technology. If our group feels we can make a sound decision to invest while providing great strategy, connections and support we believe we can truly become partners in the endeavor rather than just financiers. All of this helps minimize risk in what is a very risky business.

Lahl: When I first met you several years ago, you commented that your organization never funds gambling, porn or embryonic stem cell research. How/why did you come to make these guidelines?

Garcia: These guidelines and others were agreed to at the inception of the firm. All of the founding partners shared a common faith and today believe that although we may have missed great opportunities to make money we have created good jobs for folks in good ethical companies and that is a much more positive story we want to take homes to our families and associates.

Lahl: Looking specifically at what happened with Monsanto and their funding of genetically modified foods and also what happened with the European markets in this area, literally overnight this market slammed shut because the public confidence hadn’t been shored up as the public’s values were not taken into consideration prior to funding. Restaurants and grocery stores quickly put up signs announcing ‘no gm foods’ or ‘no frankenfoods’. Should the public’s value or ethical standards be taken seriously? And if so, how do you consider public values in your funding decision making?

Garcia: Public opinion, as you know can be very finicky. Ask any politician. We do indeed look for public opinion but cannot rely exclusively on this when we do make our decisions. Ultimately, the partners of the firm, along with our international group of advisors help us make these decisions. In the end we vote with our hearts and hope we continue to stay the course we outlined at the creation of our firm.

Lahl: Currently we are in a major international debate on embryonic stem cell research. The U.S. media and science community caution us that the U.S. is going to fall seriously behind the world in research if monies aren’t available to fund this research. There has been almost zero private money funding embryonic stem cell research which is why states like California passed proposition 71 and other states are drafting similar legislation, turning to the public for funding. As investors, how would you respond to this?

Garcia: Our belief may not be mainstream. We remain concerned about America’s ability to compete globally on the innovation front knowing that on the manufacturing side of things we have fallen behind to other countries. However, the stem cell arena is not the only place that the US can excel in. Biotech is a very large field and other areas like proteinomics will also allow us to create innovation. We are holding off making any investments in stem cells knowing that the ethical debate is nowhere near over. Practically speaking, however, capitalism has a way of winning in America and I can’t help but wonder what this debate will look like in just a short 10 years.