Govt Agencies Aim Capital at Private Sector

Updated: Some experts think that the CIA's venture capital unit exemplifies a government/industry partnering trend that critics call risky.

In-Q-tel, the CIAs spooky-sounding venture capital unit, publicly celebrated its hiring last week of former national cyber-security czar Amit Yoran as its new president and CEO.

The spy agencys highly public stance regarding its investment arm stands in stark contrast to that of other federal agencies, where similar venture capital pursuits are under way in a much quieter fashion. This creates a government/industry partnering trend that critics call risky.

Yorans career exemplifies the kind of interweaving of public- and private-sector experience that the government has strived to cultivate since the terrorist attacks of Sept. 11, 2001.

Yoran graduated from the U.S. Military Academy at West Point, and his venture capital knowledge dates back to his founding of Riptech Inc. in 1998, which he sold to Symantec Corp. in 2002. His government expertise includes a stint as director of the National Cyber Security Division of the Department of Homeland Security.

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In-Q-Tel was established in 1999 as a way for the CIA to accelerate the development of commercial technologies for intelligence gathering.

The Arlington, Va., operation, with an annual budget of $40 million to $45 million, has invested in at least 90 companies over the last six years, spending more than $160 million, said spokesperson Reishia Kelsey.

In-Q-Tels popularity in Silicon Valley and ongoing national security pressures in Washington have led other federal agencies to begin emulating the public venture capital model in quieter, less direct ways. The Pentagons nascent Defense Venture Catalyst Initiative provides a forum for Department of Defense officials and venture capitalists to meet to prioritize the militarys needs, which are then communicated to technology companies.

In addition, the DOD in 2004 launched the Commercial Innovation Integration program, which generated 13 partnerships using new technologies by leveraging the venture capital process, according to DOD budget documents.

The Army, NASA and the Navy have separate programs to leverage venture capital, and other agencies, including the National Security Agency, have shown interest in developing comparable programs, according to the Washington-based National Defense University.

Noting the recent disclosure that the NSA has eavesdropped on phone calls and e-mail messages without any court approval, Jim Harper, director of information policy studies at the Cato Institute, a think tank in Washington, said that blurring the line between government and industry sends the wrong message about the governments powers. "In-Q-Tel communicates to Silicon Valley and other technology folks that surveillance is a good thing," Harper said. "The effects that you see are rather dramatic."

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Constitutional liberties aside, there is a bottom-line risk that the In-Q-Tel model poses for enterprise America, Harper added: "It can turn people away from building the next killer app toward building the next surveillance technology."

That is, in fact, one of the payoffs of the venture capital involvement, as outlined by the director of the Defense Venture Catalyst Initiative, Steven King. By gaining early insight into emerging commercial technologies, the military can influence product development early on and direct investment toward military-specific adaptation.

"Going forward, In-Q-Tel will continue to invest in technology that protects our national security and protects our civil liberties," said Gayle von Eckartsberg, vice president of Strategic Alliances at In-Q-Tel. "A core part of our model is that we encourage companies to stay on the commercial path to develop best-of-class commercial grade technologies rather than one-off government solutions."

Editors Note: This story was updated to comments from Gayle von Eckartsberg.

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