CIA sets up VC fund to develop information and spy technologies

Silicon Valley, James Bond, the Central Intelligence Agency (CIA). In what would seem like something that could only be dreamed up in a Hollywood spy movie, America’s top spy agency has set up a venture capital shop on Sand Hill Road in Redwood City, the heart of Silicon Valley’s venture capital industry. The unit will provide start-up funding for companies hoping to develop new information and spy technologies.

The company is called "In-Q-It," named after the character of "Major Boothroyd" in the James Bond spy novel and movie series. Boothroyd goes by the nickname "Q" and is the mastermind behind all of the spy gadgets invented for 007 to complete his missions.

In-Q-It will be headed by Gilman Louie (why that isn’t Louie Gilman? Who knows? It’s the CIA). To add even more irony to the bizarre story, Louie comes to In-Q-It from toy maker Hassbro where he most recently headed up the online business group. CIA officials explained that the agency has little choice but to compete with the rest of Silicon Valley’s high-tech industry and venture capital companies in order to get a hold of technology that can be used for the protection of U.S. national security.

During most of the past 50 years, the U.S. Defense Department has had access to the most advanced technologies years, sometimes decades, ahead of the commercial market. But today, commercial technology is moving ahead so quickly, the Pentagon often is forced to convert technology popularized in consumer electronics products to military purposes. And fewer companies are willing to accept Pentagon money to finance new technology development in return for giving the U.S. government exclusive use of the finished product for a considerable period of time. Financial markets and venture capital sources are so ready to fund just about any sound engineering idea, the Pentagon has become an option of last resort on many cases.

In-Q-It is not arriving in Silicon Valley with a boatload of money to hand out. The company’s initial budget is only $28 million, enough to fund only a handful of ventures. And exclusive financing is virtually out of the question. The most In-Q-It will be able to accomplish is to get on "venture capital teams," groups of VC firms banding together to fund a new start-up. "There is a tremendous information explosion today. As a result, the CIA is always one step behind. The agency got the idea that maybe what it needed to do was to build an umbilical cord that is plugged into the brightest minds in the Silicon Valley," said John McMahon, former deputy director of the CIA.

Louie added that another goal of In-Q-It will be to allow the CIA to adopt newly developed technology faster than is typically allowed by government procedures in order to be able to overcome such problems as Internet security. He added that none of the projects In-Q-it decides to invest in will involve classified research. That function is performed by some branches of the CIA, the Energy Department, the National Security Agency and others. In the past, the CIA often set up shell companies to help solve a particular problem. In-Q-It will operate as a non-profit group and intends to re-invest any gains on its investments back into other start-ups.