If you’ve not heard about it, the CIA has a venture capital arm.
Huh, you might think. Why does the CIA need a venture capital arm? Because they want to learn about and work with new technologies that can help intelligence/national-security from the start. And where — in many cases — is the start? In Silicon Valley and in venture capital.
Personally, I think it’s a cool idea. Apparently, In-Q-Tel has not only (1) helped the government get access to important new technologies and (2) helped many new technology companies navigate the government, they have (3) also managed to get a superb rate of return in the process. 26% says this article in the Washington Post.
When thinking about In-Q-Tel, I think it’s easy to miss the point. In-Q-Tel, to my knowledge, isn’t about how technology is used inside intelligence agencies. Instead, it is about ensuring the government learns about and gets access to potentially-valuable technologies early and gets a strong rate of return in the process.
So, personally, I think it’s a cool idea. Why? Because in general, I’m a big fan of intrapreneurship — the harnessing of entrepreneurial spirit inside large organizations. Despite efforts on my (and others) part, we failed to get an intrapreneurial model working at my last company, Business Objects. So I, like many others, pursued entrepreneurship and new ventures instead. I think large organizations need to harness entrepreneurial energies, instead of losing their entrepreneurs. That’s why I like In-Q-Tel.
Two things worth reading on innovation in large organizations are:
- Dealing with Darwin, Geoffrey Moore’s new book. It’s a bit too Cisco-focused for my taste, but overall another great work. And gosh is he a a delightful writer.
- Bringing Silicon Valley Inside, by Gary Hamel. My favorite concept from this article is that in most corporations it takes one “no” to kill an idea. In Silicon Valley, it takes one “yes” to enable one.
I’m writing about In-Q-Tel today because the New York Post recently skewered them in this article, entitled “CIA Inc Stinks”. I think the author largely misses the point of what In-Q-Tel is doing, and that were there no In-Q-Tel, there would simply be paid staffers evaluating new technologies instead (a pure cost as opposed to an ROI model). What’s more I think he makes an important error in saying they are “funneling money” to Wall St. It’s investing, not funneling, and Sand Hill Road is the proper address, not Wall St. (You can’t pump-and-dump private equity investments; most venture funds run 7-10 years.)
In fact, the only good thing about the New York Post article is that it lambastes Convera, a quasi-competitor we sometimes see in Government deals. Yes, Convera has an accumulated deficit of over $1B. (And they have lost $60M+ in the past three years, have shrunk revenues from >$50M to ~$25M in the past four, and seem to have made restructuring an annual event.) Yes, I think they’re a shipwreck and I doubt the CIA got a good return on its investment. (Although with the right timing they might have.)
But that’s not the point. Failure is part of the Silicon Valley model. In France, failure was an indelible smear on one’s resume. In Silicon Valley, it’s a red badge of courage. Judging a venture capital firm by its failures is like judging Babe Ruth by his strikeouts. It’s the wrong metric.
Top-tier venture capital firm and Mark Logic investor Sequoia Capital has had plenty of misses. But then again, they got Apple, Atari, Oracle, Documentum, Ebay, Flextronics, PayPal, Google, Mark Logic, and scores of others right.
If you’re interested in reading more about In-Q-Tel, here are some good links: