Silicon Valley venture firms are chomping at the bit at the prospect of $3 billion in state funding for stem cell research, promised if California’s Tuesday referendum on Prop. 71 passes. You’ve heard all the reasons to vote for it, including that it would support new venture capital investments in stem cell research and so help fuel jobs and economic growth here. It would help keep California — especially Silicon Valley — on the forefront of medical innovation, and keep bio-tech dollars from rushing to more friendly places offshore. Joseph Lacob, partner at one of the valley’s leading venture firms, Kleiner Perkins, Caufield & Byers, reportedly gave $500,000 in support of the campaign. The firm has even taken to ordering #71 from the lunch menu of a local Chinese food caterer.

But we’d like to point out two recent arguments against it:

First, there’s are own Merc colleague Dan Gillmor, who raises some great points in this column, and it’s worth checking out the comments to see how divided people are. Second, Mitch Kapor, former entrepreneur and now investor and overall big thinker, sent out an email last week that sums up the reasons why he is voting against Prop 71. At least one VC, Jeff Nolan, of SAP Ventures agreed with the reasoning, and is voting against it. (Thanks, Jeff, for the link)

Here are some of Kapor’s thoughts that caught our eye:

“Under Prop. 71, the governing body (a new “Institute for Regenerative Medicine”) which would control the $3 billion of public funds will be dominated by people who are part of or close to both the institutions and companies that would benefit from the funds. This is a conflict of interest. Comparable oversight boards for other types of research which have been established at the federal level are far more inclusive and often mandate that disinterested experts and members of the public and/or other stakeholders without financial conflicts be included.

“The Institute would set its own rules, exempting it from oversight by both the public sector (e.g. officials and from a body of federal and state regulations) and the private sector, including those that address informed consent and protection of research subjects.

“By setting itself apart from the normal ground rules under which research is conducted and commercialized, there is a greatly increased risk of downstream lawsuits and other unforeseen problems. The lack of accountability leaves everyone, including researchers, taxpayers, and businesses which want to capitalize on the research more vulnerable. It would be far better to promote stem cell research either through Federal activity (if Senator Kerry wins) or through the California legislature.”