CIA-funded venture firm seeks high-tech aid for US spies

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Arlington: From a nondescript office building overlooking the Potomac River, In-Q-Tel Inc. invests millions of dollars in some of the world’s most advanced high-technology companies.

But this venture capital firm isn’t typical in any way. For starters, it’s a nonprofit. It invests only in tech companies whose products are geared toward national security. But what’s most unusual about In-Q-Tel is where it gets its funding and its direction: from the Central Intelligence Agency.

In-Q-Tel is the CIA’s venture capital arm and the intelligence community’s eyes and ears on the private-sector technology world.

Created five years ago at the height of the tech boom, the VC firm’s goal is not to make money, but to find high-tech products that can someday be used for security or spying.

Of course the CIA has its own research and development operations. And when it needs to, it can simply acquire technology it wants.

But “the idea was that the CIA needed access to all that technology being built in garages in Silicon Valley, in universities, in national labs ... that (it) just couldn’t see otherwise,” said Gayle von Eckartsberg, In-Q-Tel’s vice president for strategy and communications. “They needed a mechanism for doing that.”

So with the help of some high-profile heavyweights, including former Defense Secretary William Perry, former Lockheed Martin Corp. Chairman Norman Augustine and former Xerox Corp. Chief Scientist John Seely Brown, the CIA created In-Q-Tel.

Since then, the firm has used its annual stipend of about $35 million from the CIA to invest in about 40 companies across the nation and in Canada.

The unusual idea is gaining interest in other government agencies, most notably the Defense Department.

“I can’t think of anything that’s like In-Q-Tel today,” said Mark Heesen, president of the National Venture Capital Association. “But the thinking is that the In-Q-Tel model is going to be replicated by other agencies throughout the federal government.”

In-Q-Tel is small compared with the average $145 million invested each year at traditional VC firms, according to figures from Heesen’s group. And its typical investment of $1 million to $3 million per company is small too.

But “our goal isn’t to invest for the sake of investing,” said Kimberly Cook, In-Q-Tel’s director of technology assessment.

“It could be the greatest technology since sliced bread, and we could know going in that this is going to be the next Microsoft,” Cook said. “But if there’s no value in something for the intelligence community, we wouldn’t invest in it.”

Most of In-Q-Tel’s investments have resulted from the more than 1,000 submissions it gets annually from tech firms seeking capital. In other cases, In-Q-Tel seeks out its own investments, even helping create companies to ensure interesting technology moves forward.

Seahawk Biosystems Corp., an Austin, Texas start-up, is one of the latter.

Last month, In-Q-Tel gave company founder Curt Bilby an undisclosed amount to turn blood analysis technology developed by the US Naval Research Laboratory into a viable product.

Today, Seahawk is developing a biosensor tool that can test blood for antibodies and DNA. Initially, Seahawk’s biosensors will be marketed commercially to veterinarians to do animal blood testing, but the CIA also may someday use the technology.

“The company didn’t exist before they (In-Q-Tel officials) contacted me,” said Bilby. A veteran of several start-ups, Bilby added that the In-Q-Tel is more helpful and hands-on than traditional venture capital firms, helping with everything from gaining access to government agencies to public relations.

“It’s been a lot more than the typical, ’Here’s a check and give us a report in a few months and we’ll sprinkle some advice on you very now and then,’ “ he said.

Language Weaver Inc. is another typical In-Q-Tel company. Based in Los Angeles, it makes language translation software, including a product that can quickly translate Arabic broadcasts into English.

Chief executive Bryce Benjamin claims even he doesn’t know if the CIA actually uses his product, although he did get a hint during a recent visit with In-Q-Tel’s board.

“People don’t tell me anything ... so I really don’t know the extent we’re being deployed or how we’re being deployed,” Benjamin said. “But they (board members) were all saying to me, ’Keep it up, you’re making a difference.’ “

The other thing In-Q-Tel officials told Benjamin was to look for more ways to sell his software on the commercial market. That may sound odd coming from a capital-area outfit that works for the government, but it really isn’t.

In-Q-Tel invests only in companies that can create products both for government and commercial applications. That helps keep the price of the products down for government buyers and also helps ensure a company’s long-term viability, Cook said.

“The last thing we want to do is find a great technology, get a (CIA-affiliated) customer really excited about it and then the company goes out of business,” she explained.

In-Q-Tel typically takes “board observer” seats in companies it invests in, primarily so it can monitor companies’ financial health. It also has agreements ensuring it can access technology even if a company is sold or split up.

Most companies in which In-Q-Tel has invested have products that clearly cross commercial and CIA markets. Endeca Technologies Inc., which has an office in Atlanta, makes software that searches and analyzes data. Keyhole Inc. and MetaCarta make maps on which other data can be superimposed. Electro Energy Inc. and Qynergy Corp. make portable power equipment and batteries.

In the past, some of the companies In-Q-Tel has invested in have flopped. Others have been acquired. It has made some money when companies have gone public — money In-Q-Tel claims has been reinvested in its general investment fund.

The private company doesn’t release financial data. It says its companies have transferred more than 100 different technologies to the CIA, but won’t give specifics.

That secrecy aside, there’s little indication In-Q-Tel is controlled by the nation’s intelligence agency, other than maybe its name. The “Q” is a play on James Bond’s tech guru, and the “In” and “Tel” is short for intelligence.