U.S. spy agency's venture capital fund now bankrolling 8 high tech startups
August 18, 2000: 3:17 p.m. ET
NEW YORK (CNNfn) - It is probably among the last places most entrepreneurs
would think of tapping for venture capital funding. Regardless, the Central
Intelligence Agency has gotten into the game of providing much- needed seed money for
high technology startups.
It took a lot of arm-twisting to persuade Congress and some in the intelligence
bureaucracy that starting a venture capital fund to keep critical government agencies
like the CIA at the forefront of new technology would be a good idea. Yet, that task
was accomplished and Congress approved $28 million last year for the project and
In-Q-Tel was born.
To date, In-Q-Tel, the CIA's venture fund, has reviewed more than 300 business plans
and provided seed money for eight high-tech companies. Most of them share a common
mission of creating new security technology.
Indeed, In-Q-Tel is going to provide money only to companies whose products can in
some way benefit U.S. security interests. Gilman Louie, In-Q-Tel's CEO, said in an
appearance Friday on CNNfn's Market Call that in addition to computer security he is
interested in such things as sensor technology that could help U.S. military and spies
detect biological and chemical weapons.
In-Q-Tel differs from traditional venture funds in at least one significant way: It is
not a money-making operation. The fund has non-profit status and any earnings it makes
on its investments will be sent straight to the United States Treasury.
A departure for Washington
The fund is a real departure for Washington and for the United States' spy agency.
Traditionally, technology for government agencies was developed in tightly secured
government labs or contracted with private corporations. These days, however,
information lags far behind technology, meaning that by the time anyone finds out
about it, the next wave is already on the way. In the information explosion of the
last decade, the CIA lost a lot of the edge it had in high technology.
Wireless gadgets and high-tech products like satellite images and electronic
surveillance equipment, now available to the public, including terrorists, were once
the exclusive domain of the government. Creating this fund is an experiment to try to
put the CIA back in the position of high-tech predominance it held throughout the Cold
War. (230K WAV) or (230K AIF)
CIA spies have a host of technology needs. In addition to tiny sensors and the most
secure computers in the world, the agency has put out the call for stronger Internet
search engines, technology that will allow them to surf the Internet in complete
secrecy, and software that can translate every language in the world.
Former computer game designer leads effort
The choice of Louie to run the fund also is a departure for Washington. Louie, 39, is
no government wonk. He's a former Silicon Valley techno whiz who earned digital renown
when, in his early 20's, he created the flight simulator, Falcon. He later sold his
company to Hasbro for $70 million.
Most recently, Louie was Hasbro Interactive's chief creative officer and general
manager of the Games.com group, which oversees Hasbro's Internet games site.
Not only is the pace of technology too fast for government agencies to keep up, Louie
said, but it is rapidly becoming too costly to try to develop all the technology to
meet government needs alone.
Louie described his position at In-Q-Tel as that of a human translator. He explains
the government's technology needs to Silicon Valley entrepreneurs in the hope of
inspiring them to work with In-Q-Tel. He also hopes to convey to cutting edge firms in
Silicon Valley that in many areas, such as information security, the governments needs
are very much in line with the needs of corporate America.
"The CIA has very advanced needs," he said. "We can really help them get the first
mover advantage because a lot of companies have these needs, too."
At least two other government agencies, the National Aeronautics and Space
Administration and the U.S. Postal Service, are looking at creating similar ventures.Ê
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