In-Q-tel spies out advanced technology for CIA
Company has put $200 million into 100 firms to obtain the latest software for its main 'customer'
November 3, 2007
From: Contra Costa Times
By: Kambiz Foroohar
BLOOMBERG NEWS
MotionDSP Inc. co-founder Sean Varah was in his office in San Mateo
in October 2006 when he got an e-mail from a potential investor. The
sender had been cruising technology blog TechCrunch and read about
MotionDSP's software, which enhances images from videos and mobile
phones.
Two weeks later, four engineers flew in to test the program. In April, the startup landed an undisclosed sum.
There's a twist to this tale: MotionDSP's investor isn't a neighboring
venture capital firm or an acquisitive company such as Microsoft Corp.
or Yahoo Inc. The money came from In-Q-Tel, the Virginia-based VC
business of the Central Intelligence Agency, the U.S. spying
organization.
Since In-Q-Tel was founded in 1999, the firm has reviewed more than
6,300 business plans for everything from identity recognition software
to nano-sized electronic circuits.
In-Q-Tel has put about $200 million into more than 100 companies,
beating traditional VC investors to technologies such as the mapping
software that's become Google Earth.
"One of the most important things about In-Q-Tel is that they're out
there proactively looking for companies," Varahsaid. "They have a
customer with a high technical standard."
That customer, the CIA, has had its share of gaffes. The agency failed
to predict Iraq's invasion of Kuwait in 1990, events leading to the
collapse of the Soviet Union in 1991 and nuclear arms tests by India
and Pakistan in 1998.
Recently, the CIA overestimated Iraq's capabilities in building weapons
of mass destruction, according to a July 2004 report by the U.S. Senate
Select Committee on Intelligence.
"The failures of Iraq have left a lasting cloud over the administration
and, by extension, over the intelligence community," said Steven
Aftergood, a senior research analyst at the Federation of American
Scientists.
In-Q-Tel itself hasn't escaped controversy in its eight years as the
CIA's venture arm. Until June, its 55 employees were required to put 10
percent of their compensation into a fund that invested in the same
startups In-Q-Tel was backing. The profits became part of their bonuses
as In-Q-Tel generated hefty returns.
In 2005, In-Q-Tel sold for $12 million investments that had cost it
$1.96 million, according to tax filings. That raised concern about the
fund's mission.
"This is not about making money," said Peter Barris, managing general
partner at VC firm New Enterprise Associates in Reston, Va., and an
In-Q-Tel director. "The focus should be on getting technology into the
hands of the right people."
In-Q-Tel is on its fourth chief executive officer, Christopher Darby,
48, who joined from Intel Corp. in September 2006. Darby brings a blend
of entrepreneurialism and executive experience. He started at Northern
Telecom Ltd., now Nortel Networks Corp., and moved to Digital Equipment
Corp.'s telecommunications division. He led several software and
Internet consulting and security firms after that.
"Darby has skill in the corporate area," said Michael Crow, In-Q-Tel's
nonexecutive chairman, who's also president of Arizona State
University. "He brings an understanding of the relationship between
small companies and large corporations."
At In-Q-Tel, Darby eliminated the controversial employee investment
fund. And he switched In-Q-Tel's focus from taking equity stakes in
startups to acquiring technologies to meet the goals the CIA outlines
in its annual directive called the "problem set."
The top objectives are fighting terrorism and countering nuclear,
biological and chemical weapons, Darby said. In-Q-Tel is exploring
holography and virtual reality in addition to the more mundane
practices of searching text and video and translating languages.
"The virtual world will make it to the intelligence world," Darby said,
seated in a demonstration lab, where he's surrounded by black Dell
laptops and four 6-foot-tall screens.
In September, In-Q-Tel made an undisclosed investment in Forterra
Systems Inc., whose software simulates situations like urban warfare
and lets participants place themselves in the action. Darby won't say
what the CIA will use it for.
Silver-haired Darby looks the part of a spy chief. He guards his
comments, occasionally stopping in midsentence. He never says the word
CIA; he calls the agency "the customer."
"The raison d'etre for us is to get the right technology to the
community," Darby said, referring to the CIA and its analysts. "It's
important to look at the customer's problem set."
In-Q-Tel is investing in video capture, such as the technology offered
by Pixim Inc. This software can handle extreme backlight as well as low
light, enabling images captured under adverse conditions to be
viewable. It's also investing in software that enables images to be
searched, much like Google sorts through text.
In-Q-Tel has invested in PiXlogic, whose software uses visual pattern recognition.
MotionDSP's Varah said
In-Q-Tel is a year ahead of other VC firms because its main client has
a good grasp of its needs. "They see market opportunities ahead of
other VCs," Varah said.
