Forbes.com: Startups Backed By The CIA
The Spy Agency Has A Venture Capital Arm That Is Funding An Array of Companies Developing Bleeding-Edge Technologies
Tiny cameras. Hearing devices for the teeth. Wi-fi for refrigerators. These are some of the products made by companies that have caught the eye of In-Q-Tel, the venture capital arm of the Central Intelligence Agency.
One of the most recent companies to get an infusion of cash from the U.S. spy bureau's investment fund is Cleversafe, a Chicago-based startup that offers software to keep data stored in cloud networks secure by slicing it up and storing it in different locations. In a press release issued last month about the investment, William Strecker, In-Q-Tel's chief technology officer, said the intelligence community is looking for new ways to secure information given the increasing ubiquity of cloud computing.
The country's only federally funded venture capital firm was created in 1999, during the tech boom, because the private sector was setting the pace in technological innovation, leaving the intelligence community feeling not very intelligent. In-Q-Tel invests in startups developing technologies that could prove useful to the CIA and the national security community. But it knew it had to adjust to the Silicon Valley model to work. "The CIA had to offer Silicon Valley something of value, a business model that the Valley understood; a model that provides those who joined hands with In-Q-Tel the opportunity to commercialize their innovations," CIA official Rick Yannuzzi wrote in a briefing document for the Defense Intelligence Journal in 2001.
In-Q-Tel invites startups to submit applications for funding through its website, asking for their business plan, a technology whitepaper and leadership list. The operation's budget is classified, but the Washington Post reported in 2005 that it received $37 million in funding yearly from the CIA. It tends to invest from $500,000 to $2 million in a given company.
In-Q-Tel issues a press release every time it funds a new company, but it discloses neither the amount of the investment nor the product it's focused on. It's believed that the relationship can lead to the development of off-market products tailored specifically for the CIA. A spokesman for one company funded by In-Q-Tel told Forbes that their investment was focused on a specific project with a yearlong deadline, declining to provide further details.
What technologies is the CIA interested in now? One clear area of focus is energy. In 2007 In-Q-Tel plugged into AdaptivEnergy, a company that develops products that harvest energy from impulse shocks, vibrations, and even footfalls. It also likes companies that are working on making smaller batteries, like Qynergy, a New Mexico-based company working on radioisotope batteries, and Infinite Power Solutions, a Colorado developer of thin-film batteries that can power RFID (Radio Frequency Identification) tracking chips.
Speaking of RFID, In-Q-Tel seems to see potential there. In 2008 it invested in Massachusetts-based ThingMagic, a company that makes RFID chips that can "track anything." The Florida State Attorney's Office for West Palm Beach uses them to track felony case files, and Ford offered them up as an additional feature for pickup trucks. A contractor can put the tags on all of his tools, so that a quick scan of the truck bed with an RFID scanner will reveal everything in there. ThingMagic was acquired last month by GPS device maker Trimble Navigation for an undisclosed amount. In-Q-Tel has also invested in GainSpan, a company finding ways to make everything wi-fi-enabled, from refrigerators to health monitoring devices, for richer information on something than just its location.
Experts say the next big trend in data is going to be geolocation, and the power to predict where you're going to go next and who you spend the most time with. Several companies focusing on geospatial technology are in the In-Q-Tel portfolio, including Image Tree Corp., which can help show where illicit crops are being grown, and Fortius One and Geosemble, which map people, places and things instantly using location data from RSS feeds and tweets.
As one would expect from a spy support firm, In-Q-Tel is very interested in companies that make better cameras. Earlier this year, it sank money into LensVector, which is taking the moving parts out of cameras, employing electricity to change the focus of liquid crystal lenses; the company makes auto-focus devices that are dwarfed by pennies. IQT's also interested in making sense of video shot by the increasing numbers of surveillance cameras. In 2005 it invested in 3VR, which creates video analytics to make surveillance video "Google-able."
Companies coming up with better ways to use and monitor the Internet have attracted In-Q-Tel money. Earlier this year it invested in Recorded Future, a company that mines websites, blogs and Twitter accounts to "predict the future" by making "invisible links." The company says it's also popular among Wall Street traders.
Intelligence agencies are increasingly interested in mining open-source intelligence, particularly online, but the proliferation of voices, whether on social networks, blogs, or elsewhere, can be challenging to make sense of. Visible Technologies, FMS and StreamBase, all companies that provide products that analyze the massive amount of data flowing out of social networking and communication sites, all found spots in the In-Q-Tel portfolio.
In-Q-Tel has some fun investments, like Destineer Studios, an outfit that develops military-themed videogames as well as training simulations for active-duty soldiers.
The espionage potential of many of the technologies in the In-Q-Tel portfolio are immediately apparent, but there are some surprises, like Sonitus Medical, which makes hearing aids that fit over the teeth and send sounds directly to the inner ear.
Is involvement with the CIA good for business? A connection to the CIA can be a slight disadvantage for companies when doing business overseas, particularly in China or the Middle East, where people are leery of the affiliation with the intelligence agency.
However, entrepreneurs generally welcome interest from In-Q-Tel, says Basis Technology CEO Carl Hoffman, because it's a gateway to Washington for small companies that normally struggle to compete for federal contracts. An investment from In-Q-Tel led Hoffman's company, which makes software that analyzes foreign-language texts, to expand to Middle Eastern languages, and it now does business with a variety of federal agencies, including the NSA. He says that IQT is also well regarded in Silicon Valley because of its successful investing track record. "When we mention to other Silicon Valley investment firms that In-Q-Tel is one of our investors, that earns us brownie points."
Josh Lerner, an investment banking professor at Harvard Business School, says that the liquidity crisis in venture capital has made venture firms eager to draw In-Q-Tel in as a partner. "Funds are increasingly looking to other, less traditional investors to fund portfolio firms, including In-Q-Tel, even if their ultimate objectives may be quite different from the venture capitalist's goal of maximizing the rate of return."