All Tech Considered
3:55 pm
Mon July 16, 2012

In-Q-Tel: The CIA's Tax-Funded Player In Silicon Valley

Originally published on Tue July 17, 2012 3:13 pm

For more than a decade the CIA has run its own venture capital fund called In-Q-Tel. It was founded in the late 1990s when the CIA was drowning in data and didn't have the tools to connect the dots. Today, In-Q-Tel has become one of the most unusual investors in Silicon Valley.

Jeffrey Smith, the former general counsel of the CIA, was one of a small group of intelligence community insiders who helped set up In-Q-Tel more than a decade ago. At the time, the idea of a government-funded venture capital firm was completely new. Even though this company would be part of the intelligence community, Smith and the others knew it would need to attract entrepreneurs' attention, beginning with its name.

"We really needed something that also had appeal to a wider audience and, frankly, had some sex to it," Smith says.

So they named In-Q-Tel after Q, the fictional character who makes gadgets for James Bond.

The Funder Behind The Curtain

Whether you have realized it or not, over the past 13 years In-Q-Tel has changed your life.

"Much of the touch-screen technology used now in iPads and other things came out of various companies that In-Q-Tel identified," Smith says.

In-Q-Tel was also an early investor in a company that stitched together satellite images and maps. That company was later bought up by Google and became Google Earth.

Other data-crunching startups backed by In-Q-Tel have been bought by IBM and Hewlett-Packard. Today, the CIA's venture capital fund has more than $170 million in assets. And up and down Silicon Valley, it's investing millions of taxpayers' dollars in dozens of new startups

Mouth Radios And Hologram Screens

A number of today's cutting-edge tech companies might not exist without the backing of In-Q-Tel and, indirectly, the help of the CIA.

Peter Hadrovic says an investment from In-Q-Tel helped his company, Sonitus Medical, turn a novel hearing aid into a two-way radio you can hide in your mouth. It conducts sound through the bones in your head and gives people wearing it "the ability to receive incoming wireless sound literally without using your ears," Hadrovic explains. Instead of wearing headphones or earplugs, users attach the device to their teeth. Hadrovic says the device could even be shaped like a tooth.

Another In-Q-Tel-backed company, Infinite Z, makes holographic displays. Users put on 3-D glasses and use a small laser pointer to manipulate holograms that seem to pop off of a computer monitor. You can imagine hundreds of uses for a display like this — from computer-aided design to three-dimensional satellite mapping to medical imaging.

In-Q-Tel has also invested in Silver Tail Systems, a security firm that identifies suspicious behavior online. Silver Tail co-founder Laura Mather, a former research analyst for the National Security Agency, says In-Q-Tel gives her company the CIA's seal of approval and helps her sell to federal customers.

Taxpayer-Funded Technology

Smith, the former general counsel for the CIA, says In-Q-Tel was created to bring technologies like Silver Tail's into the intelligence community quickly.

Back when it was created, the original idea was that In-Q-Tel would not be supported by taxpayers forever. It was set up as a nonprofit that would reinvest it earnings in its mission — and pay private-sector salaries. Today, its CEO, Christopher Darby, earns roughly $1 million a year.

"The salaries in the high-tech community among successful people are really quite extraordinary," Smith says. "My father used to say you tend to get what you pay for, and I think that's true."

In-Q-Tel only invests in projects that create technology with commercial applications outside of government, because a successful commercial product is more likely to be supported and developed.

But In-Q-Tel has never become self-sufficient. It still receives more than $56 million a year in government support, according to its most recent tax return. Smith says, though, that In-Q-Tel's primary goal was never financial independence, or even to make money. Its purpose was to help the CIA catch up with technology, and he says it's done that.

"If you go now to the desk of an analyst at the agency who's working on any given problem — let's take nuclear proliferation [for example] — what they have available to them today is breathtaking," Smith says.

And Smith says In-Q-Tel deserves much of the credit.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

ROBERT SIEGEL, HOST:

Next up in today's All Tech Considered, one of the more unusual venture capital funds in Silicon Valley. It's run by the CIA. The fund, called In-Q-Tel, was founded in the late 1990s when the CIA was drowning in data, and didn't have the tools to connect the dots. We asked NPR's Steve Henn for this profile.

STEVE HENN, BYLINE: Jeffrey Smith is the former general counsel of the CIA. He was one of a small group of intelligence community insiders who helped set up In-Q-Tel more than a decade ago. At the time, the idea of a government-funded venture capital firm was completely new. And even though this company would be part of the intelligence community, Smith and the others knew it would need to attract entrepreneurs' attention.

JEFFREY SMITH: We were trying to think of names, and we had a number of different names.

(SOUNDBITE OF MUSIC)

SMITH: We really needed something that also had appeal to a wider audience and, frankly, had some sex to it.

HENN: So they named it after Q...

(LAUGHTER)

HENN: ...the man who makes the gadgets for James Bond. And whether you've realized it or not, over the past 13 years, In-Q-Tel has changed your life.

(SOUNDBITE OF MUSIC)

SMITH: Much of the touch-screen technology used now in iPads and other things, came out of various companies that In-Q-Tel identified.

HENN: And invested in. It was also was an early investor in a company that stitched together satellite images and maps.

SMITH: And ultimately, was purchased by Google and became Google Earth.

HENN: Data-crunching startups backed by In-Q-Tel have been bought by IBM and Hewlett Packard. Today, In-Q-Tel has more than $170 million in assets. And up and down Silicon Valley, it's investing millions of taxpayers' dollars in dozens of new startups.

Peter Hadrovic says an investment from In-Q-Tel helped the company he works for, Sonitus, turn a novel kind of hearing aid into a two-way radio you can hide in your mouth. It conducts sound through the bones in your head, and gives people wearing it...

PETER HADROVIC: The ability to receive incoming wireless sound - literally, without using your ears. Device attaches to your teeth and gives you hearing. It's that sound in your head. And you simply have nothing on your ears.

HENN: You have nothing on your ears. And Hadrovic says the device could even be shaped like a tooth. Another company In-Q-Tel is backing is called Infinite Z. It makes holographic displays. David Chavez invited me into his office, and walked me through how it worked.

All right. So I just put on some 3-D glasses...

DAVID CHAVEZ: Sure. Have a seat.

HENN: ...and I'm sitting in front of a - wow.

(LAUGHTER)

HENN: I am looking at a 3-D monitor; what looks like a flat panel TV, but it's cantilevered back at a 45-degree angle. And there, popping off the screen, are all these objects. There's a Scrabble board and a ruler, and all appear in three dimensions. As I walk around the monitor, they look real. They move through space as I do, and my perspective shifts. Then, I take this little laser pointer, and I can pick them up.

CHAVEZ: Pick it up.

HENN: So hold the button down and pick it up.

CHAVEZ: Pick it up. Roll your wrist over and look at the back of it, and try to describe that.

HENN: You can imagine hundreds of uses for a display like this: from computer-aided design to three-dimensional satellite mapping, to medical imaging. But this company, Infinite Z, might not exist today without the backing of In-Q-Tel and indirectly, the help of the CIA.

LAURA MATHER: I worked at the National Security Agency, and I still have no idea how to sell into the federal government.

HENN: Laura Mather is co-founder of Silver Tail Systems. It's a security firm that identifies suspicious behavior online. In-Q-Tel is an investor in her company. Mather says it gives her firm the CIA's seal of approval, and that helps her sell to huge federal customers.

Jeffrey Smith says In-Q-Tel was created to bring technologies like Silver Tail's into the intelligence community quickly. But back when it was created, the original idea was that In-Q-Tel wouldn't be supported by taxpayers forever. It was set up as a non-profit that would reinvest its earnings in its mission, and pay private-sector salaries. Today, its CEO, Christopher Darby, earns roughly a million dollars a year.

CHRISTOPHER DARBY: The salaries in the high-tech community, among successful people, are really quite extraordinary. My father used to say you tend to get what you pay for, and I think that's true.

HENN: But In-Q-Tel has never become self-sufficient. It still receives more than $56 million a year in government support, according to its most recent tax return. But Smith says In-Q-Tel's primary goal was never financial independence, or even to make money. Its purpose was to help the CIA catch up with technology. And he says it's done that.

DARBY: If you go, now, to the desk of an analyst at the agency who's working on any given problem - let's take nuclear proliferation - what they have available to them is breathtaking.

HENN: And Smith says In-Q-Tel deserves much of the credit. Steve Henn, NPR News, Silicon Valley. Transcript provided by NPR, Copyright National Public Radio.