Five years ago, Google withdrawn from a Pentagon government contract as thousands of employees protested that its technology could be used for deadly drone targeting. Today, however, Silicon Valley has much less difficulty developing technology for the US Department of Defense.
That’s what four investors – Trae Stephens of Founders Fund, Bilal Zuberi of Lux Capital, Raj Shah of Shield Capital and former In-Q-Tel president Steve Bowsher – said at a startup event for military veterans today in San Francisco. Shah said of the shift in attitude he’s personally observed, “The number of companies, founders and entrepreneurs who are broadly interested in national security — I’ve never seen it at this level.”
Bowsher argued that Silicon Valley’s “unwillingness to cooperate with the [Defense Department] and intel community” was always “over the top,” adding that during his 16 years at In-Q-Tel, the CIA’s venture capital fund, his team has met with about 1,000 companies each year and only “five to 10 have turned us down.” , saying they were not interested in working with the clients we represent.”
We’ll have more of the panel in businessupdates.org+, but we want to share parts of our conversation that focused on things to consider when selling to the US government, as founders with commercial customers may be thinking more and more about putting their products and applications on to the US government. US Army. (This is especially true for AI and cybersecurity and automation startups.)
For example, we talked to the investors about mission creep, which is how a startup that starts working with the government can make sure it doesn’t spend most of its time on the government because of new requests — and rather ignores commercial clients in the process.
Here, Trae Stephens — who also co-founded Anduril, a maker of autonomous weapons systems that has aggressively done business with government agencies from the start — said that this kind of gradual shift in objectives is “exactly what makes it difficult to do both . [cater to civilian enterprises and the government] in an early stage.”
He said that many of the programs that [enable founders to] doing early business with the Department of Defense requires some such as DoDization of your product for that use case.
While In-Q-Tel supported Anduril early on, for which Stephens said he is grateful, he offered that many companies that take money from the government, including through the Small Business Innovation Research (SBIR) program, “eventually all of these very specific workflow steps that steer them away from the commercial ones required to really make the business work (Stephens noted in that regard that very few outfits can go after the military exclusively, as Anduril did, because it’s “so long takes to go into production with the DoD that you basically have to be able to raise an infinite number of starting dollars; otherwise the company will die.” )
Related to that, we asked how so-called dual-use companies handle their intellectual property rights once they start selling to the government. For example, you can imagine a scenario where a technology helps the NSA identify certain types of people making certain types of calls, and while there are commercial uses for this technology, the government doesn’t want it released to adversaries. Is there a way to arrange that in advance we wondered?
There was no simple answer here other than: get the right help and do it as soon as possible.
Zuberi shared a cautionary tale about one of Lux’s own portfolio companies. Said Zuberi, “I have a company that received $100,000 [National Science Foundation] scholarship. Two men started it in my office. I didn’t think much about it; I liked having it on their resume. Then they started doing a series B raise, and one of the [interested] firms are pushing for some other contracts [the team might] have, and there was a clause in that NSF grant that said, ‘Hey, if the government needs it [what you’re building], we can use it.’ So we had to wait six months while we negotiated with [someone] to the NSF who didn’t give a damn about getting that right back. I would have paid them double the amount of the scholarship to make it go away, but they said, ‘No, you can’t do this, we can’t go back.’ So you can getting in trouble.
Again, we’ll have more from this discussion soon, including about AI in military applications; we learned a lot – hopefully you will too.
