www.ndu.edu/inss dh No. 71 1 

The stories of Google and Segway certainly end differently. With a market capitalization of over $180 billion, Google is arguably the biggest success in the information technology (IT) industry in the last decade. 

The phrase google it has worked its way into everyday language and dictionaries. 

On the other hand, Segway remains a privately held company whose products are 

largely relegated to use by tourists in major cities and security personnel at airports. 

We certainly do not hear people say that they “segwayed” to work this morning.

Oddly enough, these companies started out in similar places. Both had potentially game-changing new technologies that needed investment to further 

their development and company growth, and both received this investment from 

Kleiner, Perkins, Caufield, & Byers, a well-regarded venture capital (VC) firm.

The stories of Google and Segway succinctly demonstrate both the power and 

pitfalls of the VC industry. Venture capitalists have unparalleled access to cuttingedge technology. However, this technology is generally in an immature state, and 

its successful development and implementation are far from guaranteed. Venture 

capitalists provide the funding necessary to advance the technology and in return are 

given partial ownership (an equity stake) in the company. In this sense, the Federal 

Government and venture capitalists are involved in related, though separated, worlds. 

Like venture capitalists, the government invests billions of dollars in the research and 

development (R&D) of new technologies, many of which will never mature into a 

usable product. The government does not receive an equity stake, however.

For decades, the government was the major source of cutting-edge technology research. In the 1980s and 1990s, however, private sector investment began to outstrip public sector investment, especially in the IT field. Suddenly, the 

Maximizing the Returns 

of Government Venture 

Capital Programs 

by Andrew S. Mara

Defense Horizons

National Defense University

Center for 

T

e

chnology and 

National Se

curity Poli

c

y

About the Author

Dr. Andrew S. Mara was AAAS Science 

and Technology Policy Fellow in the 

Center for Technology and National 

Security Policy at the National 

Defense University.

Key Points

◆ The Federal Intelligence Community and the Department of Defense 

have made substantial commitments in the venture capital community through In-Q-Tel, OnPoint 

Technologies, and DeVenCI. Despite these commitments, knowledge of these programs throughout the government is limited.

◆ Government venture capital 

(GVC) programs have insight into 

many small technology companies that are otherwise invisible. 

To maximize the value of GVC 

investments, company information 

should be shared among government agencies.

◆ Despite their innovative approaches to investment funding, GVC 

programs still struggle with the 

difficult task of transferring new 

technologies to the government. 

Classification, timing, culture, and 

incentive issues all plague successful 

technology transfer; however, these 

challenges are not insurmountable.

◆ Successful venture capital efforts in 

industry often rely on a “technology champion” to usher new technologies into the parent company. 

GVC programs should adopt a similar strategy to increase the transfer 

rate of promising technologies.

January 2011
2 dh No. 71 www.ndu.edu/inss

government no longer had its finger on the pulse of technology development. It was falling behind the private sector.

In response, several government agencies created 

their own VC-like entities meant to reconnect the government to the private sector and harness new technology 

investments. The largest of these programs, and the topics 

of this paper, are the Central Intelligence Agency (and the 

larger Intelligence Community) In-Q-Tel, the U.S. Army 

OnPoint Technologies, and the Department of Defense 

(DOD) Defense Venture Catalyst Initiative (DeVenCI).

This paper examines how government venture capital (GVC) initiatives can provide four key benefits to 

the government: a wider “window” on new technology 

development, an increased potential government supplier base, more leverage of private investment, and more 

rapid acquisition of new technologies.

The majority of the information in this paper was 

compiled from interviews with corporate and private 

venture capitalists and survey responses as well as interviews from GVC-backed companies. All of the surveys 

and interviews were nonattributional, a necessary caveat to 

ensure that the interviewees could provide honest and uncensored responses. While this study generally focuses on 

improvements to these programs, it should be noted that 

most companies surveyed and interviewed were largely 

positive about their interaction with GVC programs. In a 

survey, 81.5 percent of In-Q-Tel and 100 percent of OnPoint Technologies companies rated these programs as 

similar to or better than their private VC investors.1

GVC Programs

In-Q-Tel

Founded in 1999, In-Q-Tel is a nonprofit entity 

funded entirely by the Federal Intelligence Community 

(IC). Through 2007, In-Q-Tel had received approximately 

$350 million in funding, of which about $150 million has 

been directly invested in small technology companies either as equity or “work program” investments.2

 The majority of In-Q-Tel investments are in the IT field, which is 

fitting given IC interest in data management, analysis, and 

processing. Connecting In-Q-Tel to the CIA is the InQ-Tel Interface Center (QIC), whose main mission is to 

connect the technologies in the In-Q-Tel portfolio to potential Central Intelligence Agency (CIA) missions. The 

QIC also serves as the portal through which the unclassified work from the company is transferred to the classified work of the IC. Since most companies will not have 

personnel with proper security clearances, this portal is extremely important. Moreover, the QIC provides an annual 

“problem set” that provides guidance to In-Q-Tel in terms 

of the types of technology that the CIA finds of interest. 

In-Q-Tel identifies companies that may address an issue 

in the problem set and then further consults with the QIC 

to verify that a proper match has been made. Only then 

does In-Q-Tel make an investment.3

In-Q-Tel has two options when making an investment. It can make either an equity investment, where it 

receives part ownership in the company, or a work program 

investment. Work programs typically provide funding for a 

company to develop its technology in a way that suits IC 

needs. For example, if a company has developed a new communications antenna, but the CIA needs that antenna to be 

50 percent smaller, it could make a work program investment to help fund that reduction in size. Typically, In-Q-Tel 

makes both equity and work program investments. In addition to equity in the company, In-Q-Tel receives an observer 

seat on the board of the company. While this observer does 

not have a vote in company decisions, he has access to all of 

the information about them, providing In-Q-Tel with an 

excellent way to monitor the company’s progress. Through 

2009, In-Q-Tel reported more than 100 investments.4

OnPoint Technologies

OnPoint Technologies was founded by the U.S. 

Army in 2002 specifically to address the Service’s conwork programs provide funding for 

a company to develop its technology 

in a way that suits IC needs
www.ndu.edu/inss dh No. 71 3 

tinued need for new power and energy solutions. Like 

In-Q-Tel, OnPoint is run as a separate, nonprofit entity. OnPoint was initially funded with approximately 

$62 million of unspent R&D dollars that were “swept 

up” at the end of government fiscal years and then 

invested in OnPoint. The authority to add money to 

OnPoint has since expired; thus, there are no plans 

for it to receive additional funding. However, OnPoint 

has done an impressive job of growing its original investment. Public records indicate that OnPoint now 

has total assets of almost $150 million.5 This increase 

in assets is caused by an increase in value of OnPoint’s 

portfolio companies. Given its small fund size, OnPoint 

is not capable of making work program investments 

and makes only equity investments in early stage technology companies. It monitors the company’s progress 

through its position on the management board. There 

is no organization analogous to the QIC, so all investments are discussed directly with potential “customers” 

within the Army to ensure that OnPoint’s portfolio 

companies match current Service needs. Furthermore, 

OnPoint’s staff is in charge of facilitating technology 

transfers to the Army, and the pay structure provides 

substantial incentives and bonuses for successful transfers. Through 2009, OnPoint had made 13 investments.

DeVenCI

Unlike In-Q-Tel and OnPoint, DeVenCI does not 

make direct investments in technology companies. DeVenCI was officially formed by DOD in 2006, though it 

had been operating as an unofficial group for several years 

prior. DeVenCI uses a number of voluntary VC “consultants” who help link private companies to potential 

DOD customers.6 DeVenCI communicates the needs of 

its customers to the VC consultants, who provide information on companies that may be able to fit those needs. 

DeVenCI then sets up meetings and presentations between the two groups to explore whether there may be a 

match. Thus, DeVenCI is more of a meeting broker than 

a venture capitalist. Recently, DeVenCI has received a 

small amount of funding that it can use to sponsor field 

tests and trials of new technologies. Because DeVenCI 

does not make investments, it is able to interact with a 

much larger number of companies on a smaller budget 

than either OnPoint or In-Q-Tel. DeVenCI has hosted 

meetings between more than a hundred small companies 

and potential DOD customers.

Opening the Window on 

Technology

Venture capitalists have tremendous access to small, 

high-tech companies since they are often the only potential source of funding for high-risk, high-reward business 

ventures. Thus, VC firms review thousands of business 

plans a year (of which approximately 1 percent receive an 

investment), providing them with a comprehensive look 

at technology development. The stream of business plans, 

known in the industry as “deal flow,” is the lifeblood for 

any VC investor. Furthermore, many of the companies in 

this deal flow are not inclined to interact with or market 

to the government. The government is not likely to be a 

high-volume customer, and the procurement process is 

slow and intimidating. Thus, there are literally thousands 

of small technology companies that the government is 

unaware of. If the government has knowledge of technical developments in the private sector, it can better position itself to ensure it is capitalizing on those developments and prevent duplicative efforts. This knowledge is 

known as the “window” on new technology.

All three of the GVC programs are actively involved 

in expanding their sponsoring agency’s window on technology. As a potential investor, In-Q-Tel has reviewed 

more than 7,500 business plans and gathered information 

on technologies that almost certainly would have otherwise escaped the IC’s eye.7

 While only a small fraction of 

there are literally thousands of small 

technology companies that the 

government is unaware of
4 dh No. 71 www.ndu.edu/inss

these business plans ever receive an In-Q-Tel investment, 

the Intelligence Community still benefits from knowledge 

of developments in the private sector technology pipeline. 

Likewise, OnPoint has reviewed over 500 business plans, 

in step with its substantially smaller budget and narrower 

focus.8

 Both of these programs have established connections within the VC community allowing them to share 

some of the deal flow from other private firms.

DeVenCI uses Technology Showcase events to provide a window on technology not only to the DeVenCI 

staff, but also to interested DOD groups. DeVenCI likely 

has a narrower window since it does not actively review 

business plans or invest in small companies. However, by 

using its VC consultants, it gains insights into the deal 

flow of multiple private VC firms at a fraction of the cost 

of making investments.

Thus, each GVC program appears to be observing 

new technology cycles that otherwise might have remained 

obscured. However, for the most part, knowledge of the 

deal flow of GVC programs remains within the program 

itself and is not shared or widely disseminated throughout 

the government. Some groups in the Intelligence Community who contribute funds to In-Q-Tel indicated that 

while they had mechanisms to provide input on potential 

investments, they did not have any way to systematically 

search In-Q-Tel–investigated companies to gather a larger 

sense of developments in the IT field. Likewise, many of 

the military Services are interested in issues of power and 

energy, and the author has spoken to numerous officials 

who were completely unaware of OnPoint’s efforts.

There are some concerns of privacy involved in sharing this information. Certainly, some companies may not 

wish to have information on their technology released to 

GVC programs should be able to 

find and fund companies that would 

otherwise be excluded from the 

government supplier base

other government agencies. Some companies are operating 

in “stealth mode,” where they release little information on 

their workings. But these concerns on confidentiality seem 

overblown; an overwhelming number of the venture capitalists and companies interviewed for this study welcomed 

the opportunity to share information on their technology 

with potential government customers. Indeed, information 

on the companies in GVC portfolios is often already available to some extent on company Web sites, or through VC 

databases such as Dow Jones VentureSource or Thompson 

VentureXpert.9 Secrecy concerns could be mitigated by creating a password-protected database available only to government personnel. By providing the window on technology 

to a wider range of government offices, existing investments 

in GVC could be further leveraged for maximum effect.

One can easily envision, for example, a Defense 

Advanced Research Projects Agency program manager 

searching company information to determine the state 

of the art in microcommunications. Or think of the value 

that such a database could provide to the new Marine 

Corps Expeditionary Energy Office (E2O). By providing a glance at the energy technologies currently under 

development, the E2O would have a significant jump on 

identifying new technologies for Marines deployed in 

Iraq and Afghanistan. While creating a database of companies in the deal flow of GVC would likely take some 

additional manpower (but probably no more than one 

full-time position for each program), this cost would be 

more than offset by the value created. The database need 

not contain detailed information. One-page summaries 

of the technology along with contact information for the 

companies would be sufficient to extend the window on 

technology to potentially interested government parties.

Recommendation 1: GVC programs should create a 

searchable database containing contact information and technology descriptions for each company in their deal flow.

Increasing Potential Government 

Supplier Base

Government (and DOD in particular) difficulties in 

dealing with small companies are well documented.10 To 
www.ndu.edu/inss dh No. 71 5 

its credit, the government does make a sizeable investment in small companies via the Small Business Innovation Research (SBIR) program, which provides research 

grants to small companies. Reviews of the SBIR program 

are mixed and will not be covered here. Unfortunately, a 

recent court ruling specifically excludes venture-backed 

companies from receiving SBIR grants, removing an 

entire segment of small technology companies from the 

major source of engagement.11

Thus, GVC programs should be able to find and 

fund companies that would otherwise be excluded from 

the government supplier base. Indeed, this appears to be 

an area where GVC is performing well. Of the 13 companies in the OnPoint portfolio, none had received government contracts or SBIR grants prior to interacting 

with OnPoint.12 Thus, all of OnPoint’s companies were 

new government suppliers. At least some of these companies may have been attracted to the government as a 

potential customer even without OnPoint’s interactions. 

However, a survey of six OnPoint companies shows that 

none of them thought they were “highly” or “extremely” 

likely to sell to the government before OnPoint, versus 

50 percent after. Indeed, one OnPoint company’s technology is already implemented in batteries stocked and 

used by Army Soldiers.

In-Q-Tel appears to have had similar success. In a 

survey of 39 In-Q-Tel portfolio companies, only 26.3 percent of companies thought that they were highly or extremely likely to sell to the government prior to their InQ-Tel interactions. This number substantially increased 

to 78.9 percent post–In-Q-Tel interaction. Additionally, 

at least 62 of the 103 In-Q-Tel portfolio companies had 

not received a government contract or SBIR grant prior 

to In-Q-Tel investment, indicating that 60.2 percent of 

these portfolio companies are new potential suppliers.13

While technical difficulties precluded a similar survey of DeVenCI companies, at least 60 of 128 companies 

(46.9 percent)14 that have presented at DeVenCI technology events had no prior contracts from the government.

Overall, GVC programs have done an admirable job 

of bringing new companies into the potential government supplier base; however, improvements could certainly be made to leverage these contacts throughout the 

government. A separate study conducted by the author 

indicates that approximately 25 percent of companies in 

the In-Q-Tel and OnPoint portfolios go on to win government contracts after investment. While this number 

is impressive, it is possible that it could be substantially 

improved by spreading word of portfolio companies, 

work program results, and successful prototypes or field 

tests throughout the government. The author has met 

many project managers and research scientists within 

DOD (which has investments in all three GVC programs) who are completely unaware of some or all of the 

GVC programs. One can easily imagine a scenario where 

a technology field test may not fit the CIA’s needs but is 

well suited for a Navy project.

Engaging with other entities throughout the government is a herculean task and will likely require additional effort and manpower. One mode of outreach 

would be to include more detailed white papers for the 

technology in each portfolio company. GVC programs 

will have intimate knowledge of the technology in these 

companies (from their board observers and due diligence before investment), which could be shared from a 

for-official-use-only portal. Privacy and confidentiality 

could raise issues, but, as indicated earlier, interviews 

with venture capitalists and portfolio companies indicate that most companies welcome the opportunity to 

share their technology with new government customers. Complementary models could include portfolio 

company showcases, GVC program participation in 

existing technology events (that is, SBIR conferences), or technology newsletters distributed to project 

one can easily imagine a scenario 

where a technology field test may not 

fit the CIA’s needs but is well suited 

for a Navy project
6 dh No. 71 www.ndu.edu/inss

managers, government laboratory personnel, and acquisition officials.

Recommendation 2: GVC programs should actively 

engage and cross-promote portfolio companies throughout 

the government. Detailed technology descriptions, work 

program developments, and field test results should be 

available to government personnel via a searchable database. Introducing portfolio companies to many government 

customers will leverage the new potential supplier base created by GVC programs.

Leveraging Private Investment

There can be little doubt that GVC programs are leveraging private investment. The fact that they are bringing new potential suppliers into the government supplier 

base (as described above) constitutes leveraging private 

investment, even without counting the number of private VC dollars invested in GVC portfolio companies. 

Through 2007, In-Q-Tel reports that it has leveraged 

more than $1.4 billion,15 and OnPoint claims about $1 

billion in private VC co-investment.16 DeVenCI, by its 

noninvesting nature, is leveraging private investment by 

default. These claims must be taken with a grain of salt, 

however, since the private VC investment would have almost certainly occurred without any GVC action. Thus, 

the private dollars are only truly leveraged if the GVC 

investment leads to actual transfer of a new technology 

to a government customer.

Surveys of 34 In-Q-Tel companies that received 

equity investments yielded some surprising results that 

affect how GVC leverages private investments. Only 

roughly a third of surveyed In-Q-Tel companies indicated that the equity investment was highly or extremely 

important for developing their technology. This number 

paled in comparison to 65.4 percent of companies who 

found work program investment highly or extremely 

important. A similar discrepancy was reported for the 

importance of equity and work program investments 

on potential sales to government customers (51.5 percent versus 71.4 percent highly or extremely important, 

respectively). These results line up with responses indicating that of equity investments, work program investments, links to government customers, and association 

with the In-Q-Tel brand, more than half of the companies found equity investments to be the least valuable asset of their interactions with In-Q-Tel. Furthermore, 59 

percent of companies reported that they were very likely 

to have received sufficient funding for their business ventures without any In-Q-Tel investment.

Given that In-Q-Tel is not focused on financial 

gains, these results question whether equity investments 

are a crucial part of the In-Q-Tel process. Indeed, some 

interviewed companies observed that In-Q-Tel seemed 

insistent on an equity investment (in addition to a work 

program investment) even if the company was not particularly interested in it.

From In-Q-Tel’s perspective, there certainly could 

be value in making equity investments. Such investments 

could be necessary to gain access to private VC deal flow, 

though now that In-Q-Tel is established in the VC community, continued equity investments might be less important. Alternatively, In-Q-Tel may find that the board 

observer seat they receive in return for an investment is 

crucial to meeting In-Q-Tel’s mission goals. Nevertheless, In-Q-Tel may be able to transition from equity to 

work program investments and increase the technological returns to the Intelligence Community. Indeed, it appears that such a shift may already be occurring as InQ-Tel has been slowly trending from a traditional VC 

model to a “strategic investor” approach.

OnPoint, on the other hand, is largely confined to equity investments. It simply does not have existing funds 

to support a work program approach, and since it will not 

receive any additional funding, it is reliant on returns from 

companies report that equity 

investments from OnPoint are quite 

important for both technology 

development and government sales
www.ndu.edu/inss dh No. 71 7 

equity investments to generate new capital for future endeavors. Companies report that equity investments from 

OnPoint are quite important for both technology development and government sales, with 66.7 percent and 

60 percent of companies claiming they are highly or extremely important, respectively. Moreover, since OnPoint 

does not have any work program investments to influence 

technology development, a seat on management boards of 

portfolio companies is one of the few tools available.

Recommendation 3: In-Q-Tel should continue to shift 

away from equity investments as work program investments 

may yield greater benefits for technology development and 

sale to the government.

Speeding Acquisition of New 

Technologies

Perhaps the most substantial benefit that GVC can 

provide is access to new technologies on a compressed 

timeline. All of the GVC programs report some success. In-Q-Tel reports more than 100 “technology transition events,” though their definition includes delivery 

of prototypes and field trials that may never actually be 

acquired or integrated. Likewise, OnPoint has fielded at 

least one major success (out of 13 portfolio companies). 

A state of charge indicator produced by PowerPrecise 

Solutions has been integrated into the BA–5590 battery, 

reportedly saving the Army more than $281 million. Another OnPoint company is currently field testing methanol fuel cells in U.S. operations in the Middle East. Success for DeVenCI is harder to quantify given that it does 

not actually invest in companies; however, early results 

from their field test pilot program look promising.

Unfortunately, the technology transfer benefit is also 

the hardest to realize. Corporate venture capital (CVC) 

programs, which share this strategic goal with GVC, shed 

some light on how difficult it is to incorporate new technologies into existing R&D structures. All of the CVC 

programs interviewed for this study reported having an 

extremely difficult time integrating technologies from 

portfolio companies. Managers of existing R&D programs were very skeptical of products that “were not invented here” and did not want to assume the additional 

risk of attempting to integrate a new unknown technology. Furthermore, even if the technology itself was a perfect fit, it was difficult to align the development cycles of 

the portfolio company and the corporate research division.

Solutions to the technology integration problem 

differed greatly, and some CVC programs even ceased 

operations altogether. Several CVC units noted that the 

easiest way to integrate a new technology was to acquire 

the portfolio company outright. Motorola Ventures 

(which was not interviewed for this study), for example, 

has directly acquired at least three of its portfolio companies since 2000.17 Clearly, direct acquisition is not an 

option for the government, and it is discouraging that 

multiple CVC units viewed acquisition as the most 

promising route for technology transfer.

A separate approach cited by some companies was to 

integrate project managers from corporate R&D into the 

CVC efforts. These managers were “borrowed” from the 

R&D arm to help identify and monitor the development 

of technologies that were applicable to corporate R&D 

goals. Once a technology was sufficiently mature to be 

inserted into corporate efforts, the project manager was 

returned to the R&D division to serve as the “technology 

champion” who would shepherd the technology into the 

corporate pipeline. Indeed, there are difficulties with this 

approach. Companies had to balance the different corporate climates and pay structures in the VC and R&D arms. 

Furthermore, successful integration requires a strong technology champion, and some companies were reluctant to 

“loan out” high-performing employees to the CVC arm. 

Nevertheless, there could be strong parallels between this 

approach and GVC. Some of the reported success stories for the SBIR program center on particularly talented 

the program manager chooses 

which companies will best help his 

current project
8 dh No. 71 www.ndu.edu/inss

or motivated project managers who serve as technology 

champions for their SBIR firms. Additionally, some government officials interviewed in this study indicated that 

rapid acquisition was possible, even given existing acquisition methods, if the acquiring unit had a talented and 

motivated acquisition officer. Clearly, it would be possible 

to apply the borrowed technology champion approach 

to GVC. GVC programs could recruit project managers 

from interested government units for 2- or 3-year stints, 

who would then return to their original locations to integrate the technology into their home office.

One CVC program interviewed actually changed its 

model of VC investing to adapt a technology champion–

type model. After struggling to integrate portfolio technology companies, the VC arm involved its R&D arms 

directly in the investment selection process. Project managers now go to the VC arm and request investments 

in particular types of technology. Once the VC arm has 

identified potential fits, the project manager helps decide whether that company will receive an investment. 

Simply put, the program manager chooses which companies will best help his current project, and he becomes 

the technology champion because he now has a vested 

interest in the development and integration of that particular technology. This approach is directly applicable to 

GVC investing. While the QIC (and OnPoint’s interactions with potential customers) attempts a similar approach, there is no direct connection between the portfolio company and the managers of existing projects. If 

the budding field of behavioral economics has taught us 

one thing, it is that people respond to incentives (sometimes in unpredictable ways). By directly connecting the 

portfolio company’s success to the project manager’s own 

goals, GVC could create a strong incentive to overcome 

the hurdles of technology integration. While companies 

interviewed were generally happy with their interactions 

with In-Q-Tel, they repeatedly stressed the frustrations 

of being unable to connect directly to their customers. 

Classification issues certainly come into play in these 

interactions, and they are discussed in more detail later.

Recommendation 4: GVC programs need to develop 

methods to reliably produce technology champions in government agencies. Such champions could be personnel borrowed 

from R&D efforts who then return to the R&D world to 

shepherd in new technologies. Alternatively, project managers could be directly involved (and incentivized) in portfolio 

company selection linking successful technology integration to 

the project manager’s own goals and priorities.

To this point, this paper has described organizational 

approaches to help speed technology transfer. However, 

there are additional “information-based” approaches that 

could better prepare portfolio companies to deal with existing government infrastructure. Interviews with VC firms 

and portfolio companies consistently revealed that both of 

these groups were extremely poorly informed about the 

government procurement process. While companies were 

interested in selling to the government and understood that 

the process would likely take several years, they could not 

even identify the proper place to begin preparing. Along 

these lines, multiple interviewees suggested that having a 

primer on the government acquisition process specifically 

geared toward small venture-backed companies would be 

of immense value. Each GVC program may need to adapt 

this primer to their specific government customers (for example, Army, CIA); however, relatively little effort would 

be required to produce a document that would greatly help 

companies deal with the technology transfer process.

Recommendation 5: Create a primer on the government procurement process that is specific to small venturebacked companies.

A more intense intervention would be to create an office within each VC program specifically designed to help 

companies navigate the acquisition process. Such an office 

would need to be staffed with an acquisitions expert who 

was well connected to the potential government customer. 

if the budding field of behavioral 

economics has taught us one thing, it 

is that people respond to incentives
www.ndu.edu/inss dh No. 71 9 

As one government official noted, a skilled acquisition 

agent can greatly speed the technology transfer process.

Someone with extensive experience in R&D who 

could bring project managers and companies together 

would also be valuable. Granted, technology transition offices for the SBIR program already exist. But the 

usefulness of these offices was repeatedly questioned 

by company officials, with one going so far as to state 

that technology transfer offices were “largely considered 

a joke” within the venture-backed business community. 

Indeed, these offices are generally insufficiently staffed to 

provide the detailed interactions necessary to help navigate the requirements of the Federal acquisitions process. By limiting access to these technology transition offices to companies in GVC portfolios, companies could 

receive a higher level of personal attention and advice. 

Many companies indicated that just having someone to 

call when they had a question would be helpful.

It is important to reemphasize that the staff in these 

VC technology transition offices needs to be very familiar with the acquisition processes of the government customer. In addition, while In-Q-Tel may have the budget 

to fund such an effort, neither DeVenCI nor OnPoint 

has a staff or budget capable of doing so. Thus, a considerable investment would need to be made in both 

programs to hasten technology transfer. Unfortunately, 

the SBIR program suggests that such investments are 

difficult to make. Multiple reports have recommended 

a staffing budget for SBIR grants, but to date, all mandated SBIR funds still must be dispersed as grants.

Recommendation 6: Create technology transition offices 

with skilled acquisition experts to provide guidance and advice to companies as they navigate the acquisition process.

Conclusion

There is no doubt that GVC programs have yielded both strategic and material benefits for their government customers. A quantitative analysis of these 

benefits is the subject of another study. However, this 

study has identified six key recommendations that 

could help maximize the benefits that GVC programs 

currently provide. Information-sharing has always 

been a problem for government agencies, and GVC 

is no exception. Each individual program has done 

an admirable job of surveying the realm of privately 

backed technology companies, but this information is 

not readily available to potential government customers. Several GVC program officials interviewed for this 

study suggested that privacy concerns might prevent 

such information-sharing; however, interviews with 

Technology transfer becomes even more difficult when the technology may be used for or 

with classified systems. Indeed, several companies indicated that the lack of a security clearance made it impossible for them to directly interact with the government customer. While 

the In-Q-Tel Interface Center (QIC) attempts to fill this gap, there is little doubt that a direct 

connection to the customer would be a substantial advantage. DeVenCI deals with government agencies with classified programs but does not have a body similar to the QIC. Thus, it 

is difficult for DeVenCI to relate classified needs to companies that may be able to address 

them. While it is clearly unreasonable to acquire security clearances for all portfolio company 

employees, it may be possible to get low-level clearances for VC consultants. If the consultants 

have a better idea of the exact needs of the government customer, they may be able to better 

pick companies that match those needs.

How Classification Issues Affect GVC
10 dh No. 71 www.ndu.edu/inss

the companies themselves (and with private VC fund 

managers) indicated that these fears were exaggerated. 

In fact, most companies welcomed the ability to share 

information about their technology with the government. Making sure that this information is easily available will ensure that GVC efforts are fully leveraged.

In terms of technology transfer, this study has found 

that strong technology champions are necessary to integrate technologies from GVC portfolio companies into 

government R&D programs. These champions provide 

the intense promotion and motivation necessary to overcome the difficulties of integrating a new technology. In 

addition, creating a primer on the government acquisition 

process could help prepare small technology companies 

for the hurdles they will face when attempting to sell to 

the government. Along these same lines, many companies 

and VC fund managers indicated that having a contact in 

the government who could answer questions about the acquisition process would be extremely helpful. In fact, of all 

of the ideas discussed with companies, the creation of this 

particular office was often cited as the most promising.

The difficulties with implementing these recommendations primarily revolve around personnel issues. To 

create the databases, primers, technology champions, and 

acquisition offices, GVC programs will need additional 

funding. By limiting the scope of these programs solely 

to companies involved in GVC programs, the number of 

new personnel required should not be overwhelming. Indeed, it is likely that one full-time employee could handle 

most of the information-sharing responsibilities. While 

additional employees would be needed to implement the 

other recommendations, the added value of these employees should outweigh the costs.

Notes

1 Approximately 100 In-Q-Tel– and OnPoint-backed companies were sent surveys both electronically and via mail in June 2009. 

From those surveys, 39 In-Q-Tel and 6 OnPoint companies returned 

completed surveys.

2 In-Q-Tel, Form 990, 2007, available at <http://foundationcenter.org/findfunders/990finder/>.

3 Business Executives for National Security (BENS), Accelerating the Acquisition and Implementation of New Technologies 

for Intelligence, Report of the Independent Panel on the Central 

Intelligence Agency In-Q-Tel Venture (Washington, DC: BENS, 

2001), available at <www.iqt.org/about-iqt/attachments/BENS%20

Report.pdf>; G. Felda Hardymon et al., In-Q-Tel, Harvard Business 

School Case Study 8–804–106, available at <http://cb.hbsp.harvard.

edu/cb/product/804146-PDF-ENG>; Wendy Molzahn, “The CIA’s 

In-Q-Tel Model: Its Applicability,” Acquisition Review Quarterly

(Winter 2003).

4 In-Q-Tel.

5 OnPoint Technologies, Form 990, 2009, available at <http://

foundationcenter.org/findfunders/990finder/>.

6 See <http://devenci.dtic.mil/aboutus.htm>; interviews with 

current and former DeVenCI employees, June–September 2009.

7 In-Q-Tel.

8 Army Venture Capital Initiative, Fiscal Year 2008, Annual 

Report to Congressional Defense Committees.

9 See <www.venturexpert.com> and <www.venturesource.com>.

10 For example, Nancy Y. Moore et al., Enhancing SmallBusiness Opportunities in the DoD, Technical Report (Santa Monica, 

CA: RAND, 2008), available at <www.rand.org/pubs/technical_reports/2008/RAND_TR601-1.pdf>.

11 Committee for Capitalizing on Science, Technology, and Innovation, Venture Funding and the NIH SBIR Program, ed. Charles W. 

Wessner (Washington, DC: The National Acadamies Press, 2009).

12 Data acquired from <usaspending.gov>.

13 Data acquired from <usaspending.gov> and <dodsbir.net>.

14 Ibid.

15 In-Q-Tel.

16 OnPoint.

17 Data from <www.venturexpert.com>.

The Center for Technology and National Security Policy 

(CTNSP) within the Institute for National Strategic Studies 

helps national security decisionmakers and their staffs understand emerging impacts of technology and integrate 

them effectively into policies through research, teaching, 

and outreach. CTNSP supports the Department of Defense 

leadership and Congress while also encouraging wholeof-government and public-private collaboration.

The Defense Horizons series presents original research 

by members of NDU as well as other scholars and 

specialists in national security affairs from the United 

States and abroad. The opinions, conclusions, and recommendations expressed or implied within are those of the 

contributors and do not necessarily reflect the views of the 

Defense Department or any other agency of the Federal 

Government. Visit NDU Press online at www.ndupress.edu.

Linton Wells II 

Director 

CTNSP

Hans Binnendijk 

Director

INSS

Institute for National Strategic Studies
www.ndu.edu/inss dh No. 71 11 

A valid concern often raised when discussing government venture capital (GVC) programs 

is whether the government should be involved in such a highly competitive, private sector 

activity. Private VC investors are intensely driven by financial motivations, whereas GVC programs are primarily driven by strategic concerns. However, GVC programs are far from the 

only strategic investors in the VC marketplace. Many corporations have realized the potential 

strategic benefits of VC investing. 

Academic research indicates that CVC parent firms reap palpable strategic rewards from 

their VC investments. For example, innovation rates (as measured by the number of patents) 

increase in firms that make CVC investments, particularly in the IT and devices sectors where 

GVC programs also tend to invest.1 GVC efforts may even have an advantage over their CVC 

counterparts since the government is probably not viewed as a competitor and may have access to an expanded range of investments.2 Additional studies suggest that at least in the CVC 

world, strategic-minded investors may actually outperform more fiscally motivated programs 

arguing that GVC programs may be well positioned for success.3 Finally, companies with CVC 

programs seem to have more success acquiring high-tech firms (in terms of stock market reaction to the announcement of an acquisition), possibly due to their knowledge of new technologies and innovative young firms.4

Of course, these findings may or may not apply to GVC programs. Indeed, there is some 

reason to be skeptical of government VC investors. Research on Canadian GVC efforts does 

not paint a promising picture. Canadian GVC–backed companies tend to lag the private market 

in initial public offering (IPO) rate, IPO value, and innovation rates.5 However, these programs 

invest quite differently from the U.S. GVC programs discussed in this paper, and it is unclear 

if parallels between Canadian and U.S. GVC can be drawn. The survey results presented here 

give some cause for optimism about the prospects of U.S. GVC investment. 

1 Gary Dushnitsky and Michael J. Lenox, “When Do Incumbents Learn from Entrepreneurial Ventures? Corporate 

Venture Capital and Investing Firm Innovation Rates,” Research Policy 34, no. 5 (June 2005), 615–639; Gary Dushnitsky 

and Michael J. Lenox, “When Do Firms Undertake R&D by Investing in New Ventures?” Strategic Management Journal

26, no. 10 (2005), 947–965.

2 Thomas F. Hellmann, “A Theory of Strategic Venture Investing,” Journal of Financial Economics 27, no. 2 (May 

2002), 473–521; Gary Dushnitsky and J. Myles Shaver, “Limitations to Interorganizational Knowledge Acquisition: The 

Paradox of Corporate Venture Capital,” Strategic Management Journal 30, no. 10 (October 2009), 1045–1064.

3 Gary Dushnitsky and Michael J. Lenox, “When Does Corporate Venture Capital Investment Create Firm Value?” 

Journal of Business Venturing 21, no. 6 (November 2006), 753–772.

4 David Benson and Rosemarie H. Ziedonis, “Corporate Venture Capital as a Window on New Technologies: Implications for the Performance of Corporate Investors When Acquiring Startups,” Organization Science 20, no. 2 (March 

2009), 329–351.

5

 James A. Brander, Edward J. Egan, and Thomas F. Hellmann, “Government Sponsored versus Private Venture Capital: Canadian Evidence,” National Bureau of Economic Research Working Paper No. 14029, 2008, available at <http://

strategy.sauder.ubc.ca/hellmann/pdfs/Brander%20Egan%20Hellmann%20-%20NBER%20Final%20Version.pdf>.

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