This is a pretty good look at the spook shop vehicle.
As a side note, back in the early years of this century, especially immediately after the mass murders of 9/11, it was thought that investing alongside In-Q-Tel was the cool thing to do.
It took a while for the realization to sink in that they weren't necessarily in it for the money return to the VC's....
In-Q-Tel was founded in 1999 by the CIA—yes that CIA, the Central Intelligence Agency—with the mission of closing a perceived innovation gap between Washington’s security establishment and Silicon Valley. Inventions like the Molar Mic are the reason In-Q-Tel exists. Over its 26 years in business, the fund has helped launch more than 800 companies. Of the companies in this year’s NatSec 100 Report, an annual index of the fastest-growing venture-backed defense startups, In-Q-Tel is an investor in 32—far more than any other fund.
Some of the companies the fund backs are publicly known, others are secret—as is the total amount of money In-Q-Tel has invested since it began. (Fortune’s estimate, informed by the last 25 years of In-Q-Tel’s tax disclosures, is at least $1.8 billion and likely more. But In-Q-tel itself, and sources close to it, declined to share or discuss any numbers.) Whatever the amount, by and large, the companies In-Q-Tel picks are all building technologies judged to be vital for U.S. national security.
What’s more, when it finds a winner, more traditional venture investors often follow its lead. Some of In-Q-Tel’s picks have grown to become big players in their own right. Early on, the fund backed the autonomous weapons maker Anduril, which was last valued at $14 billion. In-Q-Tel also backed Palantir, supplier of big-data analytics to the military and intel agencies. Palantir may well be the clearest sign that Silicon Valley has shacked up with the Pentagon for good: It was recently valued at $250 billion, surpassing traditional defense contracting titans like Northrup Grumman, Lockheed Martin, and General Dynamics, even though its revenue, at under $3 billion last year, is just a fraction of that of those giants.
It’s possible, even likely, that you have one of In-Q-Tel’s biggest successes installed on your phone now. In 2003, In-Q-Tel invested in a mapping company called Keyhole that was looking to build a tool for the Pentagon’s National Imagery and Mapping Agency. Within weeks, according to In-Q-Tel, the agency had put Keyhole’s technology to work supporting U.S. troops in Iraq. Two years and one acquisition later, a new, commercial version of the product launched. The new owner called it Google Earth.
Organizationally, In-Q-Tel is an odd duck. It’s an independent venture capital fund, but it contracts exclusively with the federal government. Tax records show that it’s sitting on roughly $1 billion in assets, but it operates as a nonprofit. The Virginia-based fund’s nearly 200 employees are charged with finding and funding companies whose technology could help the U.S. intelligence community or Defense Department. In-Q-Tel currently receives around $100 million in additional taxpayer money per year to invest. It puts the companies it picks in touch with end users inside the government to refine their products, all in hope of yielding tech that’s both commercially successful and useful to people protecting U.S. national security.
In a moment when defense tech has suddenly become a hot enough commodity that venture capitalists are venturing to Washington in force, In-Q-Tel is something of an elder statesman. It stands as a quiet corrective to the idea that Elon Musk’s Department of Government Efficiency was the first time startup-style disruption touched the federal government. For 25 years, In-Q-Tel has been teaching the Pentagon how to fail fast and be agile.
“It’d be great for them to get credit for the consistency of the work they’ve been doing when this stuff was not a fad,” says Paul Kwan, a managing director at General Catalyst, a venture fund with $32 billion under management that has backed Airbnb, Stripe, and Instacart. On several occasions, General Catalyst has taken note of In-Q-Tel’s early picks and coinvested. That’s not unusual. In-Q-Tel has said that for every dollar it invests in a company, commercial VCs can usually be counted on to invest around $40 more.
Kwan says this halo effect in part grows out of the cadre of experts that In-Q-Tel keeps on staff. Unlike traditional VCs, they subject candidate companies to intense, in-house technical vetting before funding them. “It is a giant proctology exam, but it’s worth it to get that stamp of approval,” he says.
In 2004, a researcher at the Air Force Institute of Technology interviewed CEOs of a dozen companies who’d received backing from In-Q-Tel. One of them described the vetting process as having “a bunch of PhDs sitting in my office for two or three months asking questions that no commercial customer, even Fortune 500 customers, had asked us.” He also noted, “These people really get in your shorts.”
In-Q-Tel’s CEO, Steve Bowsher, has spent a decade and half working to keep that process going. He’ll be the first to celebrate the high-dollar, high-profile successes. “If we make money as part of that, that’s great,” he tells Fortune. “But that’s not the primary goal.”
The goal, Bowsher says, is what In-Q-Tel internally describes as “pilots and adoptions”: that is, testing startups’ tech with people inside the U.S. government and then seeing whether they permanently put it to work. Which is to say, unlike maybe every other investor across the landscape of capitalism, these investors are specifically not obsessing about whether their investments make money.
In a sense, In-Q-Tel measures success with benchmarks that are anything but financial. One is cultural: prodding the U.S. national security apparatus, and the companies that serve it, to change their sometimes-sluggish ways. The other is more personal, and felt keenly by anyone involved in national security: having the latest technological edge helps save American lives.
Inspired by James Bond movies
In 1998, it felt like the world had become digital, seemingly overnight. That year marked the founding of Google, the release of the iMac, and America Online’s purchase of Netscape for more than $4 billion. World-changing technology was coming out of California. Washington, D.C., was playing catch-up.Among the security insiders taking notice was Sue Gordon, a career CIA officer who later rose to become the second-highest-ranking intelligence official in the U.S. government. Gordon was the driving force who got In-Q-Tel up and running. (I interviewed her for a podcast in 2024, and again for this story in June.)
“Silicon Valley couldn’t find their way into the CIA and national security community because it’s tuned for the big guys in the defense industrial base,” Gordon told me last year. “We knew that the good stuff was happening in Silicon Valley. But…we needed to go outside to get access.” One solution, she felt, would be to set up an investment fund that would bridge those worlds—to jump-start companies building cutting-edge spy tech, and then put that tech into the hands of the U.S. agencies that needed it most.
Gordon says she still has a napkin from the bar at the legendary Hay-Adams Hotel in D.C., where she and a couple of fellow In-Q-Tel founders first brainstormed names for the organization. And yes: The “Q” was a deliberate reference to the Bond movies. “I insisted,” Gordon tells me. “All the stuff that Q would bring out was the coolest part of the movies.”
Gordon enlisted the help of Michael Crow, then an administrator at Columbia University specializing in science policy. Crow, who’s now president of Arizona State University, is the chair of In-Q-Tel’s board. He says one of the biggest hurdles standing between In-Q-Tel and launch was the byzantine set of rules the U.S. government has for procuring defense equipment. Bureaucrats were initially allergic to In-Q-tel’s plans to pilot new tech quickly, and some legacy contractors felt threatened.
“It sort of blew up the whole notion of procurement,” Crow says. “Administrative-type people were like, ‘Well, we gotta kill this thing.’”
But In-Q-Tel survived the initial opposition, in part, by making itself indispensable. One key feature was a system that Bowsher put into place not long after he joined the fund as managing partner in 2006. Borrowing an idea from private equity firms where friends of his had worked, Bowsher trained a cadre of associates whose job was essentially what he calls “dialing for deals”—scouring magazines, newspapers, blogs, and newsletters for promising companies, cold-calling them, and set up meetings to learn about their business.
“It’s very easy just to look at all the business plans that someone proactively submits to you and feel like, ‘Hey, I’m looking at a lot of deals and right now I’m picking the best ones.’” Bowsher says. “You got to figure out, am I seeing quality deals here?”
He says In-Q-Tel now looks into around 1,000 or so companies per year, with a roughly 50-50 split between makers of hardware and software. That work helps In-Q-Tel widen its aperture to see the broadest possible swath of new tech, Bowsher says. Just as important, it writes up its research on bleeding-edge startups—making itself useful to the intelligence community, even when it comes to companies in which it doesn’t invest.
“One director of science and technology at CIA said to us one time, ‘One of the value propositions of In-Q-Tel to me is: no surprises,’” Bowsher says. This official told Bowsher that whenever he’s told about technology that could affect the CIA’s mission, he’s consistently able to say, “I know about that technology. In-Q-Tel briefed me on it six months ago.”
Learning to fail fast
Bowsher is originally a son of Washington. His father spent most of his career in government—as a CPA running the U.S. Navy’s budget, and later as a comptroller general at the GAO, Congress’s auditing and investigative office. After getting a BA from Harvard, Bowsher headed west to attend Stanford Business School and stayed in Silicon Valley to work for several startups. The first one—attempting to launch multiplayer online video gaming in the dial-up era—crashed and burned.“It’s a [multi-]billion-dollar industry right now, right? My son spends hours playing video games. We were just too early,” Bowsher says. “Those signs were all there and I missed them.”....
....MUCH MORE
IQT is also an investor in Groq, recently acqui-hired by Nvidia.
We have maybe a dozen posts on In-Q-Tel including December 2024's "These are the AI companies that the CIA is investing in".
And perhaps most alarming of all:
Robot Writing Moves from Journalism to Wall Street
The level of alarm is of course directly related to one's perspective.
