Defensive Investments

Intelligence — not the IQ type, but the insider knowledge kind — is a key to countering terrorist attacks. Given that fact (and considering recent revelations about intelligence failures prior to the Iraq war), it's not shocking to find that the CIA would be interested in new technologies that might give the agency an edge in the information arms race. What might be surprising, however, is how the CIA goes about finding those technologies: venture capital.

In-Q-Tel, the CIA's independent, nonprofit investment organization, was formed in 1999 to discover and invest in technologies that could prove useful to U.S. national security. The result has been millions of dollars invested in dozens of companies, whose products are as wide ranging as pattern-matching software to collaboration tools to nanotechnology. "What we're specifically looking for are companies that have commercial analogs to government problems," says Kim Cook, director of technology assessment at In-Q-Tel.

The organization is understandably secretive about specific goals, but it frequently announces new investments. Companies — whether they're startups or veterans — usually get a combination deal, which involves both an equity investment as well as funding for product development or even a sales agreement.

As a result, it's in In-Q-Tel's interests — and in the US national interest — to pick well. To that end, the due diligence process is the "most sophisticated" you're likely to encounter, says Robert Shaw, chairman and CEO at ArcSight, a company that makes security management software that integrates event data from diverse security products. Other In-Q-Tel investees agree, noting that the VC has more at stake than just money. As a result, In-Q-Tel technical teams spend considerable time making sure a potential investees' technology works, fulfils a need for the intelligence community and also has commercial potential for the general public.

Undergoing such scrutiny does have its rewards, though. In-Q-Tel investments are often not tied to development contracts, meaning the investee gets funding and sales simultaneously. And being vetted by the CIA can open a lot of doors. "I think an investment by In-Q-Tel brings a certain level of credibility to the technology," says Stephen Empedocles, cofounder and director of business development at Nanosys, a nanotechnology developer that signed a deal with the VC last October. "I think that it's a powerful thing for getting new investors, and it says something important to other government agencies."

Shaw further notes that In-Q-Tel holds annual meetings for itself, its invested companies, and representatives from other government organizations who get to both listen to presentations on various technologies and provide feedback about their future needs.

Given the VC's clout and discerning nature, it can't hurt to keep an eye on its investments. Here's a sampling of recent In-Q-Tel investments.

Agent Logic www.agentlogic.comCreates software (the Enterprise Agent Server) designed to detect and immediately respond to changes in data.

Endeca Technologies www.endeca.com Specializes in software (ProFind and InFront) designed to quickly extract data from large structured and unstructured data repositories.

Inxight Software www.inxight.comSmartDiscovery software is intended to retrieve information and relationships between pieces of information from large data sources.

Keyhole www.keyhole.com The company's EarthViewer 3D application provides a three-dimensional, highly detailed "flyover" view of geographic data.

MetaCarta www.metacarta.com Geographic Text Search and GeoTagger software help locate and map geographic and time references in large volumes of documents, providing a visual, map-based representation of information.

Tacit Knowledge Systems www.tacit.com Sells secure collaboration management systems designed to connect users to the right people and quickly share information.

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