The parent company back East, it turns out, is the CIA. These days, the government agency does not often get credit for “intelligence,” much less for being “cool.” But with In-Q-Tel’s help, the agency is trying once again to become a key player in Silicon Valley and the rest of the high-tech world. In-Q-Tel is a private, nonprofit corporation–funded solely by the CIA. It was incorporated late last year with $28 million appropriated by Congress from the agency’s budget. It operates much like a venture-capital fund, right down to its prestigious board of directors, which includes Lockheed ex-CEO Norm Augustine and former Defense secretary William Perry.
In-Q-Tel’s mission: to invest in high-tech start-ups that will help the spy agency regain the edge in gizmos and gadgets that it once held over the private sector. That high-tech advantage, which the agency enjoyed during the cold war through its investments in advanced-research companies such as TRW, was badly eroded in the mid-1990s by the Internet-driven explosion in computer and wireless technologies available to consumers. Now, laments CIA Director George Tenet, “anyone who can pay,” including terrorists, can buy high-resolution satellite images and other types of electronic surveillance that were once the exclusive domain of government.
To head its new venture, the CIA tapped Gilman Louie, a former computer-game designer who earned digital fame and fortune by inventing the flight-simulator Falcon when he was in his early 20s. He later sold his company to toymaker Hasbro for $70 million. Now 39, Louie retains his flair for gamesmanship (he came up with the “Q” in In-Q-Tel, a la Major Boothroyd of James Bond fame), but he’s not playing around at In-Q-Tel. The company’s mandate from the agency is to find solutions to the agency’s technology problems–from making Internet traffic secure to safely storing colossal terabytes of classified data. As In-Q-Tel’s investments appreciate, the plan is for the company to become self-funding and to serve as a lean and profitable procurement model for other government agencies. With its small staff of e-commerce and technology whizzes, In-Q-Tel self-consciously mirrors the youthful, informal start-up culture of the Valley. In-Q-Tel’s Web site lures job seekers with the opportunity to work on “cool s—”–a job description seldom seen in CIA manuals.
Commuting between In-Q-Tel’s offices in Silicon Valley and Washington, D.C., Louie has become a cultural translator between the capitals of the new and old worlds. In the Valley, it’s jeans, term sheets and launch parties. In Washington, he stuffs himself into a suit and tie to call on congressional oversight committees and his CIA handlers. Far from feeling tainted, Louie claims his new job has enhanced his status in the libertarian, freewheeling Valley. “Most people think this is incredibly cool,” says Louie. His hybrid gig doesn’t hurt at the White House either, where Louie “Q” once found himself sandwiched between Tom Hanks and Harrison Ford at a state dinner. “In Washing-ton they don’t care if it’s Hollywood or Silicon Valley,” he says. “It’s all hip to them.”
Since In-Q-Tel set up shop early this year, it’s been swamped with nearly 300 pitches from cash-hungry start-ups. Only eight, primarily focusing on Internet security, have been chosen for investment. The firm tries to fill the agency’s high-tech shopping list by identifying entrepreneurs and inventors who are trying to launch companies based on the technologies the agency needs.
Louie says most start-ups take the CIA’s patronage in stride. But In-Q-Tel’s affiliation sometimes makes entrepreneurs queasy at first. Gif Munger, a Maryland-based computer-systems architect whose company received $3.5 million from In-Q-Tel last month, says he was at first “resistant” when he learned of the CIA’s role, fearing its reputation for bureaucracy. But after agency experts helped Munger’s engineering team work out bugs in Neteraser–a technology to protect computer systems against hackers–he reconsidered. “The guys who run their network are just like our computer guys,” says Munger. “They eat pizza and work like crazy. And they brought a level of technical expertise we couldn’t have gotten elsewhere.”
Some electronic-privacy advocates are uneasy with the CIA’s forays into new Internet technologies. And agency watchdogs doubt whether a government bureaucracy–especially one as creaky as the CIA–is even capable of nimble capitalism. “The government has a poor track record of picking market winners,” says Ivan Eland, an analyst at the Cato Institute, a Washington, D.C., think tank. “This is just an excuse not to reform an inefficient bureaucracy.”
In-Q-Tel could well become a victim of its own success. Because of its peculiar status, any profits In-Q-Tel does not reinvest would by law have to be returned to the U.S. Treasury. If, on the other hand, the investments fizzle, In-Q-Tel can resort to an option no self-respecting company in Silicon Valley would ever dream of: it can ask Congress for more money. James Bond may never have risked such dramatic bookkeeping stunts, but then again, he wasn’t operating in the Internet Age.
