An In-Q-Tel executive nominated to serve as deputy under secretary for research and engineering said she believes there are major opportunities for the Defense Department to team with commercial technology firms backed by venture capital, but only if the government is willing to "take a back seat."
Lisa Porter, director of In-Q-Tel Labs, said in written answers to advance policy questions for the Senate Armed Services Committee that it is important for the federal government to understand that venture firms “are not looking to create DOD contractors.”
"Venture-backed start-ups offer a unique source of innovative solutions for national security (both the DOD and the [intelligence community]) in a variety of areas ranging from data analytics to cybersecurity to biotechnology," she said. "From my time at IQT, I would offer that the best outcomes result when the government takes a 'light touch' with these companies, and importantly, does not derail them from their commercially focused business plans."
In-Q-Tel is a non profit venture capital firm that bills itself as the "strategic investor for the U.S. intelligence and defense communities that identifies cutting-edge technologies."
Porter, who previously served as the first director of the Intelligence Advanced Research Projects Activity, said her experience at In-Q-Tel leads her to believe that small government investments designed to "tailor or tweak" an already-planned-for commercial product allows a commercial start-up to stay focused on commercial pursuits, while allowing the government to "ride the wave" and obtain cutting-edge technology.
"If the government wants to leverage venture-backed startups effectively, it must be willing to take a back seat to the commercial business plan of these companies; smart investments by the government focus on ways to design 'hooks' into the commercial products to enable tailoring for government applications," she said. "This means that the government must accept that not all of its problems are suitable for the venture-backed community to address; but for those where the overlap with commercial applications is significant (e.g., data analytics, cybersecurity), the potential opportunities are huge."
Furthermore, she said, the Pentagon must understand the cost-benefit analysis central to the venture capital community.
"The willingness to take on real financial risk for significant upside gain translates into the fact that the vast majority of start-ups fail," she said. "For the venture firm, this failure rate is acceptable because of the huge upside of the one potential 'unicorn.' For the government, this failure rate for investment may or may not be acceptable, depending on the application/technology of interest, but it must be considered upfront as part of the investment strategy."
Regarding risk, Porter echoed comments already made by USD R&E Mike Griffin when she told senators during her May 10 confirmation hearing that DOD's weapon developers must increase their tolerance for risk.
"I think, in the DOD and particularly in the R&E environment, there has been a culture of extreme risk aversion, and that has been stifling to innovation," she said. "Risk aversion and innovation cannot coexist. So we need to get back to the spirit of experimentation that the DOD used to have, and I believe we can do that."