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These dynamics were recognized by the CIA as having the significant implications for its technology base. As part of those efforts, In-Q-Tel was formed in 1999 to help identify emerging technology to solve the CIA’s toughest technology problems. In-Q-Tel was designed to provide the CIA with access to commercially-based startups that focused on technologies addressing the CIA’s problem set. Through In-Q-Tel investments, the CIA would not only have early
336 CASE STUDIES
access to these technologies, but would also have a voice in their development and design. In essence, In-Q-Tel provided some pieces of the IT discovery portfolio for the CIA. In addition, this approach provided the CIA with immediate insight, contacts, and knowledge of the commercial marketplace. If structured properly, equity investments in startups could provide leverage on limited taxpayer dollars by leveraging concurrent private sector investment or through appreciation of the value of In-Q-Tel portfolio companies.
In-Q-Tel, formally incorporated as a nonprofit organization and devised an organizational structure modeled after the corporate strategic venture organizations and the venture capital firms of Silicon Valley. In-Q-Tel also hired leaders from the private sector and compensated them competitively. An annual contract was provided to In-Q-Tel, by the CIA to invest in technology ventures that would meet a broad problem set identified by the CIA. At the same time, the In-Q-Tel Interface Center (QIC) was created within the CIA to act as an intermediary organization between In-Q-Tel and the end user community within the CIA.
Much in the way a more traditional IT portfolio management approach is performed, proposals come into a queue for a first vetting. In this instance, however, the proposals usually come in the form of business plans. Baseline criteria have been set for initial screening. These criteria include:
• Fit and alignment with the client’s models and needs. In-Q-Tel works closely with both the CIA and the National Geospatial-Intelligence Agency to understand their needs and align them with commercial technology developments
• Commercial viability of the venture
• Viability and innovativeness of the technology proposed by the vendor
• Ability to take an equity position in the company or establish another strategic business relationship
Generally, between 1,000 to 1,500 proposals are received annually. An initial screening pares the portfolio candidates into about 300 opportunities, which are given to a team of experts in business, technology, and the customer’s problem set. At In-Q-Tel, these teams are referred to as the Venture Team, the Technology team, and the In-Q-Tel Interface Center (QIC), respectively. The teams collectively scrutinize the 300 or so proposals, honing in on commercial viability, technical merit, and fit with customer needs. Special attention is paid to focusing on needs of the client—not requirements. This distinction is important as they are after technology breakthroughs and do not want to be limited by system-level requirements. In-Q-Tel is willing to take calculated risks and make early stage investments in companies that have outstanding technology ideas but have yet to
bear the fruits of commercializing these solutions. This approach is consistent with the some of the activities found in the discovery phase of the IT life cycle.
After this second filter, each remaining opportunity is documented in a standardized format, much the way a standardized initiative request form would be used for funding approval in a run of the mill corporate IT project portfolio. This document is usually 5 to 10 pages in length. All of the candidate investments are then submitted to a review board as a portfolio. Attention is placed on the specific customers needs being fulfilled by the prospective investment. Often, In-Q-Tel will invest in more than one company to fill a stated need in order to ensure that the best possible technology solutions are available to the end user. This is similar to a real options approach often used in the discovery phase of the IT life cycle. At the review board, each proposal is discussed with the eventual goal of driving to a “go—no go” decision on each proposal in the portfolio.
Even approved investments, however, continued to be monitored as a portfolio. Several end games are in mind. First and foremost is In-Q-Tel’s measure of “Return on Technology” which is determined by the delivery of innovative solutions to the United States intelligence community. In order to ensure an optimal Return on Technology, additional funding may be required. In-Q-Tel fundamentally uses a Stage-Gate® approach to determine whether additional funding is warranted. And, while the primary focus is on Return on Technology, In-Q-Tel also pays close attention to the commercial success of its portfolio.
Unlike the famous “Q” of the James Bond movies, In-Q-Tel provides commercially-based solutions—not just nifty technology inventions. This commercial focus provides direct benefit to the Government in terms of support and ongoing improvements to the products. Because most of these solutions were also designed for commercial viability, the costs of support and ongoing development are spread across a wide range of customers and not borne entirely by the customer. Finally, In-Q-Tel works with its portfolio to help them identify and pursue an appropriate exit strategy. While a traditional venture capital firm would focus on maximizing the dollar value of an exit event, In-Q-Tel instead focuses on ensuring that the portfolio company will be stable and in a position to continue to provide value to its government customers. For example, in the case of an acquisition, In-Q-Tel will work with the acquiring company to ensure that the products will continue to be supported under new ownership. Again, this demonstrates the notion of exercising real options on their investments.