If there were ever a film to be had in the oft-arcane, jargon-filled story of actual VC investing, it would likely be about In-Q-Tel, the American intelligence community’s venture capital arm.
The narrative might go something like this: A programmer invents wild new technology. She then seeks funding, submitting a proposal to In-Q-Tel. Liking the idea, the organization backs the company, likely bringing on board some of its favored investment partners, and begins to quietly pressure the founder to adapt the tech in such a way that it would require … moral flexibility. *Insert an Aaron Sorkin-esque conclusion here.*
But, in real life, what does taking investment dollars from In-Q-Tel mean for a company? And how much influence does the organization have in its portfolio companies?
The Government’s VC Arm Spreads Its Wings
Before tackling those questions directly, it’s worth adding some context.
Once the exclusive asset of the CIA, In-Q-Tel, the government-backed venture capital arm, has taken on new partners including the DHS, FBI, NSA, and others. Since the organization’s creation in 1999, In-Q-Tel has made 167 recorded investments, according to Crunchbase, helping the firm maintain its intelligence community’s ability to stay on the bleeding edge of tech.
But unlike many of the CIA and its partners’ secret initiatives, In-Q-Tel is a nonprofit organization. As such, it is required to file a trove of financial information with the IRS. So let’s take a quick look at what they can and can’t tell us.
Intelligence Courtesy Of The IRS
While the public tax documents raise many more questions than they answer, some insight can be found.
Regardless of the organization’s tight-lipped stance towards the press, by all accounts, In-Q-Tel is thriving. During 2014, its executives managed $327 million in net assets, up from $254 million at the beginning of its 2014 fiscal year, according to the latest filings available from the IRS.
It also shells out big money for executive salaries. Christopher Darby, CEO and president of In–Q–Tel, earns a cool $1.5 million annually plus $276,000 in “other compensation from the organization and related organizations.”
Curiously, In-Q-Tel also holds about $120 million in “publicly traded securities,” which is hard to explain given the company’s startup and VC focus. But most of its investments — $132 million — are warrants, a common security startups issue.
Revenue appears to swing wildly, however, which is somewhat typical of VC investing. Government grants — about $93 million in 2014 up from $84 million the year earlier — account for a significant chunk of In-Q-Tel’s revenue. But, in 2014, In-Q-Tel lost $2 million from investments, compared to the prior year when the organization raked in $46 million. By way of comparison, In-Q-Tel’s haul was $5 million in 2012.
An In-Q-Tel spokeswoman declined to comment on certain investment activities, specific investments, and their goals.
Money Isn’t Everything
While the news media has covered In-Q-Tel and its investments extensively, let’s face it: In the age of unicorns — startups valued at over $1 billion — and billion-dollar fundraising rounds, $93 million in government grants means In-Q-Tel is a small fish in a big ocean. So what impact has it had and what does it mean for a founder to take the CIA’s — and now its partners — money?
So we put the question of the CIA’s influence to just over 20 of In-Q-Tel’s investments, some of which were not public until very recently. Many did not respond, a few declined to comment, but a few answered our questions directly about the intelligence community’s interest and influence in their company.
Here’s what we asked: “What impact has its requests as a shareholder had on your research and development roadmap? And the same question for your strategic roadmap?”
Of the 23 companies asked, 16 either declined to comment or did not respond to the request (we gave them more than a week). Those startups who did not comment include:
- Domino Data Lab
- BlueLine Grid
- Orbital Insight, Inc
- Nervve Technologies
- Redlen Technologies
- Skincential Sciences
Here’s what the other seven said about their relation to In-Q-Tel.
Evident.io, Cloud Security
“Our relationship with In-Q-Tel has been critical in helping to ensure that our product roadmap and development efforts are in alignment with the needs of the IC community. While we work closely with our commercial customers to ensure that we have prioritized their needs, it is more challenging to get that level of interaction with some government agencies because of the nature of the programs. In-Q-Tel helps to bridge that gap.”
Sila Nanotechnologies, Nanotech
“We have a work program as part of the In-Q-Tel investment, as is typically the case. Through In-Q-Tel, we’ve deepened existing relationships and formed new ones in the Defense and Intelligence Community,” wrote Craig Weich, vice president business development. “Other than that, I’m not sure that there’s anything that we would say at this time regarding impact on our R&D or strategic roadmaps.”
MapD, Big Data
“In-Q-Tel has unique insight into the needs of the IC and broader federal sector and so has been an excellent partner and source of feedback as we develop our product and GTM strategy,” wrote CEO Todd Mostak. “They have always taken a very collaborative approach to working with MapD, and there is a high degree of synergy around the shared goal of accelerating federal adoption of GPU-powered analytics.”
Boundless Spatial, Location-based Data
“We are an IQT portfolio company and have successfully graduated their work programs,” wrote CEO Andy Dearing. “In the work programs, we worked closely with IQT and their partners to ultimately build value added capabilities that would enable IQT’s partners to more easily adopt our technology. IQT has been a great partner and investor and their insights, as being a part of our Board observers, has given us a solid foundation for future growth and adding shareholder value.”
Kasey Smart Technical Support Engineer wrote: “In In-Q-Tel’s [IQT] case, I can mentioned that their requests aided us in the development of the Voxel8 Developer’s Kit 3D Printer. IQT was interested in specific capabilities that we provided through the DK units, and their funding aided us in bringing this product to market. As you may have noticed, we have since discontinued the DK (due to further development), and I cannot comment on current IQT relations.”
Recorded Future, Threat Intelligence Powered By ML
“So to answer your question: we’re super positive on In-Q-Tel – they’ve been a great partner for us – both with Recorded Future and earlier companies. I have personally worked with them for probably soon 12-13 years and the approach and team at In-Q-Tel is stellar. The actual product programs are run in a very smart way to benefit both the end customer as well as the company in itself – i.e. you don’t get asked to build weird stuff that is never used outside very niche cases,” wrote Christopher Ahlberg, CEO.
Everyone Has Secrets
Much like In-Q-Tel itself, and its clandestine government benefactors — the CIA, and others — most of the companies we asked about the CIA’s influence were tight-lipped about their relationship with In-Q-Tel. Even those that did respond offered carefully crafted written statements that, in many cases, shed little light on how the nation’s defense agencies influence what and how technology is developed.
However, it’s clear the program has been successful enough to spur other nations, such as Israel, to develop spy-backed VC operations of their own. But don’t expect much more information about In-Q-Tel in the future.
Illustration: Li-Anne Dias