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Acquisition Review Quarterly — Winter 2003

46
The CIA’s In-Q-Tel Model
OPINION

THE CIA’S IN-Q-TEL MODEL


ITS APPLICABILITY
Wendy Molzahn
In July 1999, the Central Intelligence Agency (CIA) chartered and funded a
newly established corporation, In-Q-Tel, Inc., to search the private sector for
promising commercial technologies and to invest in the development of new
technologies to support the Agency’s critical intelligence missions. Overviews
are provided of the structure, processes, and problems associated with the In-
Q-Tel model; the Department of Defense’s (DoD) current ability, through
innovative programs and flexible contracting authorities, to attract cutting-edge
technologies; and the potential costs and benefits of establishing a “venture
catalyst” firm similar to In-Q-Tel for DoD. Finally, it is recommended that DoD
establish a “venture catalyst” firm as a tool to attract new technologies in addition
to — rather than as a replacement for — existing programs and authorities.
Success will depend on DoD’s ability to transform its culture to accommodate
innovation, risk, and flexibility.

The military’s new dependence on information systems was driven


home Thursday by Defense Secretary Donald H. Rumsfeld in a speech
aimed at refocusing the Pentagon’s efforts to change the military to
better counter the threats of the 21st century. In robust defense of
President Bush’s proposed $48 billion increase in military spending
next year, Rumsfeld called for more funding for intelligence and more
attention to unpiloted aircraft and other sophisticated reconnaissance
systems. “We need to find new ways to deter new adversaries,”
Rumsfeld said. “We need to make the leap into the information age,
which is the critical foundation of our transformation efforts.”
“War Success Propels Shift to Digits,”
The Washington Post, February 2, 2002

DISCLAIMER
The views represented in this article are those of the author and do not reflect the official policy or
position of the Department of the Navy, the Department of Defense, or the Federal Government.

47
Acquisition Review Quarterly — Winter 2003

I
n 1998, senior officials in the Central hybrid model that incorporated aspects
Intelligence Agency (CIA) began to of private sector venture capital firms
realize that there was a significant in- and government technology procure-
formation technology (IT) gap between ment models. The purely government
the Agency, which continued to leverage models were rejected for several rea-
off of past accomplishments, and the private sons — the most significant reason be-
sector, which was transforming its enter- ing that the working group was not con-
prises through the use of cutting-edge vinced that a government organization
technologies. The CIA leadership deter- could react with lightning speed to
mined that in order to regain the lead in changes in the dynamic commercial IT
technology the Agency experienced in the environment (BENS, 2001).
1950s and 1960s during the development At the request of the CIA, Norman
of the U-2, SR-71, and CORONA recon- Augustine, former CEO of Lockheed-
naissance programs, it would need to esta- Martin, founded In-Q-Tel (originally
blish a vehicle to tap into private sector named Peleus, Inc. and then In-Q-It) as a
advances in information technology private sector corporation in February
(Yannuzzi, 2000). In May 1998, George 1999. It remains a nonprofit, non-stock
Tenet, the Director of Central Intelligence corporation, incorporated in the state of
(DCI), announced in his “Strategic Direc- Delaware and exempt from federal income
tion” initiative: taxation under section 501(c)(3) of the
Internal Revenue Code. In-Q-Tel’s Certi-
Beginning with the critical field ficate of Incorporation dated 16 February
of IT, we will pursue this [new] 1999, states that its purpose is to:
approach through the creation of
an external nonprofit enterprise • Perform and promote research and
designed to be electronically con- related scientific endeavors in the field
nected to leading research of IT;
throughout the country. This new
entity will speed insertion of ma- • Foster collaborative arrangements that
ture technologies, support rapid make private sector IT expertise more
development of mission-critical readily accessible to agencies of the
applications, and enhance our United States; and
ability to attract the skills and
expertise vital to our success. • Foster the development of IT that will
(Business Executives for National benefit the public, private, and aca-
Security [BENS], 2001, p. 5)1 demic sectors of the United States
(BENS, 2001).
A working group of senior CIA offi-
cials was chartered to develop and execute In-Q-Tel was designed to be flexible
the DCI’s concept. With the assistance of enough to allow for interface with all ele-
a consulting firm and a law firm, the work- ments of the IT community, the technol-
ing group analyzed several federal gov- ogy industry, and academia. Its mission,
ernment models before deciding on a as originally stated, was “to exploit and

48
The CIA’s In-Q-Tel Model

develop new and emerging information work performed by In-Q-Tel, as well as


technologies and pursue R&D that pro- its relationship with other firms and aca-
duce innovative solutions to the most dif- demic institutions, is generally unclas-
ficult problems facing the CIA and the sified.
Intelligence Community” (BENS, 2001,
p. 6).2 The organization’s vision, accord-
ing to its July 1999 Charter Agreement is THE IN-Q-TEL MODEL
to…[I]nvent the Agency of the future by
raising its IT competence to that of the The concept of operations for In-Q-Tel
best practices of the private sector and continues to evolve. The firm initially
then to explore new areas of research that focused on the role of technology sys-
equip it with capabilities that protect and tems integrator; in this role, In-Q-Tel
advance our country’s national security searched the marketplace for commercial
well into the 21st century. (BENS, 2001, off-the-shelf (COTS) technologies that
p. 6)3 could satisfy the Agency’s needs (BENS,
The In-Q-Tel CEO and Board of Trust- 2001). In-Q-Tel currently performs as a
ees set strategic policies and oversee catalyst in developing technologies to
operations. The CIA is the sole source of solve specific CIA enter-
funds for In-Q-Tel at this time; however, prise IT problems while
the firm remains an independent entity.4 simultaneously moving “The concept of
them into the commer- operations for
Although In-Q-Tel does not require
cial marketplace. In-Q- In-Q-Tel continues
Agency approval for its business deals, to evolve.”
which can include equity investments, Tel leverages off of the
contracts, and other partnering relation- commercial sector to
ships, there is a significant amount of satisfy the Agency’s needs by providing
coordination between the CIA and In-Q- input to promising technologies during
Tel on all business-related issues. The CIA the early stages of development. In-Q-Tel
does not have a typical “program man- has the ability to partner with public and
agement” oversight relationship with In- private companies worldwide, as well as
Q-Tel — the corporation makes decisions with academic institutions and laborato-
and provides the CIA with results. (Yan- ries.
nuzzi, 2000) In-Q-Tel engages with the companies
In-Q-Tel was designed to be an agile, in a variety of ways, including work pro-
flexible commercial firm that could work grams and equity investments. Invest-
on its own terms with firms in Silicon Val- ments typically range from $500,000 to
ley and throughout the world. The com- $2.5 million in each company, with a total
pany has offices in Rosslyn, Virginia and commitment of up to $5 million for the
Menlo Park, California. Currently, In-Q- duration of the relationship (In-Q-Tel,
Tel employs approximately 45 individu- 2002). Generally, In-Q-Tel is one of sev-
als (35 in Virginia and 10 in California) in eral venture capital firms investing in each
three general areas: operations, technical, IT company. In-Q-Tel has an expert in-
and venture. The relationship between the house team that evaluates each technology
CIA and In-Q-Tel is acknowledged, and through a rigorous technical review process

49
Acquisition Review Quarterly — Winter 2003

and provides feedback to the portfo- unusual opportunity of allowing firms to


lio (IT) firm. Portfolio firms with suc- test their technology using the CIA as a
cessful technologies may enjoy a stra- test bed, and funding. In addition to per-
tegic advantage (resulting from In-Q- forming a review of each company’s tech-
Tel funding, technical input, or the pros- nology, In-Q-Tel also performs an in-
pect of marketing their products to the depth review of each company’s finan-
CIA) as their products enter the com- cial status before entering into a contrac-
mercial marketplace. Some versions of tual arrangement to ensure that the com-
the commercial products that emerge pany is financially sound. Depending on
typically have been or will be evalu- the circumstances, In-Q-Tel’s contractual
ated by the CIA. For its investment of arrangements with portfolio firms can
up to $5 million through In-Q-Tel, the include one or more of several compo-
CIA’s return may be a cutting-edge so- nents: a software licensing agreement, an
lution to an IT problem that uses tech- agreement that funds technology devel-
nologies unlikely to be developed opment or modification in accordance
through federal fund- with a specific Statement of Work, and
ing alone. an equity investment in the firm (Rich-
“In-Q-Tel is a In-Q-Tel is a hybrid ard, R. B. & Cook, K., personal interview,
hybrid organiza-
organization, combin- March 1, 2002). Approximately half of
tion, combining
ing various government In-Q-Tel’s deals include an equity invest-
various govern-
ment and private and private sector mod- ment (BENS, 2001).5
sector models.” els. Much like a gov-
ernment Research and THE IN-Q-TEL OPERATIONAL MODEL
Development (R&D) The In-Q-Tel Operational Model is
organization, In-Q-Tel is bound through comprised of four discrete entities: the
a contract to only one customer, the fed- CIA, QIC (In-Q-Tel Interface Center), In-
eral government. However, as a lean Q-Tel, and commercial firms/academia
commercial corporation, it is not lim- (see Figure 1). The QIC, a 13-member
ited by government bureaucratic con- organization, serves as the link — and
straints, civil service policies, or regu- often the “translator” — between the CIA
lations and procedures. and In-Q-Tel. As the interface organiza-
In-Q-Tel characterizes itself as a “ven- tion, QIC ensures that the CIA’s require-
ture catalyst” rather than a venture capi- ments are accurately identified before they
tal firm, an expeditor of new technolo- are passed to In-Q-Tel; it is also respon-
gies (In-Q-Tel, 2002). CEO Gilman Louie sible for the transition of commercial IT
makes it clear that “[m]ost venture funds solutions from In-Q-Tel to the Agency.
focus in on the business model…[w]e The QIC manages contract administra-
have a deep technical expertise…The tion and oversight of In-Q-Tel. The QIC
most important thing is the technology and In-Q-Tel use a collaborative process,
return…[o]f secondary importance is the the “Q Process,” for the development and
financial return” (Johnston, 2001, p. E5). execution of projects.6 The “Q Process”
In-Q-Tel’s investment in portfolio firms is an eight-step process that begins with
includes time and technical expertise, the Step Q0, Agency Needs Definition and

50
The CIA’s In-Q-Tel Model

Board of Trustees

Fuel
Innovative
R&D
In-Q-Tel
CIA Silicon Valley/
Academia
Strategic
Problems

QIC

Needs Technology/Solutions

Technology Infusion
This is a modified version of the diagram in the Army Science Board Venture Capital Panel Briefing,
Version 5.0, dated 7/25/01.

Figure 1. In-Q-Tel Model

moves through step Qd, Deployment and and determines whether further funding
Agency Acquisition, with several review for prototype development or a pilot pro-
boards and required approvals along the gram with the Agency is appropriate. In-
way. Q-Tel actively advises the firms regard-
During the Agency Needs Definition ing commercialization of the products
phase, the CIA develops strategic goals throughout the process. The final phases
to pass to the QIC. Within the parameters of the process involve transitioning tech-
set by the strategic goals, the QIC surveys nology solutions, via the QIC, to the CIA
users across the CIA to define the IT Prob- for integration into mission-critical sys-
lem Set for the fiscal year. The QIC then tems. By the end of the process, an In-Q-
refines, prioritizes, and declassifies the Tel portfolio company will typically have
Problem Set for submission to In-Q-Tel. a product with commercial potential.
In-Q-Tel searches the commercial markets Problem Sets are generally broad
to “landscape the technological ‘spaces’ areas of interest. FY2001 Problem Sets
that it plans on engaging to meet the Prob- included secure mobile office capabili-
lem Sets” (BENS, 2001, p. A-1) and then ties, Web discovery techniques, ana-
invests in technologies from firms or lytic tools and techniques, Internet pri-
academia that will satisfy an Agency vacy technologies, and collection tech-
Problem Set and also be viable commercial nologies. Since September 11, 2001,
products. there has been a shift to technologies
Later in the process, In-Q-Tel tests the that enhance intelligence efforts sup-
technologies against the Agency’s porting the war on terrorism, accom-
needs, provides feedback to the firms, panied by a dramatic increase in the

51
Acquisition Review Quarterly — Winter 2003

number of proposals and business plans was created by the federal government,
submitted to In-Q-Tel. whose sole mission in life is to get big-
Historically, In-Q-Tel receives ap- ger and get more dollars from the fed-
proximately 600 business plans annu- eral government…I want this to be very
ally and provides funding to approxi- lean, very small, very quick-moving,
mately 10 technology with…people who don’t want to make
start-ups as a result. In it a career” (Loeb, 2000, p. A-15). In-
“Historically,
In-Q-Tel receives
FY2001, In-Q-Tel Q-Tel employees have diverse back-
approximately funded approximately grounds, but their experience is over-
600 business $30 million for pro- whelmingly from the commercial sec-
plans annually grams, pilots, and pro- tor. Many come from start-up compa-
and provides totypes. CEO Gilman nies, have worked for or consulted with
funding to Louie estimates that ap- the federal government, and have tech-
approximately proximately 80 percent nical or business/law backgrounds.
10 technology of the companies funded In-Q-Tel’s Web site (www.inqtel.com)
start-ups as a by In-Q-Tel in 2001 had stresses that the company is designed for
result.”
never done business agility, that employees who fill positions
with the federal govern- such as “Visionary Solutions Architect”
ment (Cortese, 2001). These firms include are expected to stay with the company
Mohomine, Intelliseek, Traction Soft- only three years before moving on, and
ware, Tacit Knowledge Systems, that only the best and brightest are cho-
MediaSnap, and Browse3D. Between sen to participate. The Web site de-
September and November 2001, In-Q-Tel scribes the in-house technical teams as
received over 600 business plans (ap- swat teams, the technologies In-Q-Tel
proximately the number of plans received invests in as frame-breaking, and states
during the previous year); a minimum of that if your technology rocks…we’d like
15 technology investments was antici- to talk to you. In-Q-Tel is clearly work-
pated in FY2002 (Kady, 2001). ing from a frame of reference that will
appeal to the firms it hopes to attract.
CORPORATE CULTURE In-Q-Tel’s success can also be attrib-
In-Q-Tel has achieved relative suc- uted to the fact that it has an office in Sili-
cess over the past three years. In part, con Valley and proactively reaches out to
this has been due to the company’s cul- firms with attractive technologies. In-Q-
ture, which is energetic and creative. Tel does not merely issue a request for
The current President and CEO, Gilman white papers and then wait for a response.
Louie, was previously a Silicon Valley The company receives proposals as a
entrepreneur, an executive at Hasbro result of its Venture Capital Outreach
Toys, and developer of computer program, from referrals, in response to
games. Louie believes that In-Q-Tel will newspaper and magazine articles, as well
fail if it falls into the trap of becoming a as through its public Web site. Finally,
government bureaucracy. Louie states, In-Q-Tel can offer firms technical advan-
“I do not want this organization to be tages that they cannot find elsewhere: a
just another research organization that rigorous technical review process, an

52
The CIA’s In-Q-Tel Model

opportunity to use the CIA as a test bed, not fully aware of In-Q-Tel’s capabili-
and the potential of partnering with and ties. The BENS report recommended
transitioning technologies to this “power that a more proactive QIC could re-
user” in the intelligence community. solve the majority of these interface
In their Report of the Independent problems. The BENS report also rec-
Panel on the CIA In-Q-Tel Venture, sub- ommended that In-Q-Tel not expand its
mitted to Congress in June 2001, the mission beyond the CIA until it has
Business Executives for National Secu- been judged a success in its current
rity (BENS) stated, “the In-Q-Tel busi- mission, possibly upon the expiration
ness model makes sense and its of its charter agreement in July 2004
progress to date is impressive for a two- (BENS, 2001).
year old venture… In-Q-Tel’s potential In response to the BENS report, the
advantage to the CIA outweighs the CIA has implemented several initia-
risk. In-Q-Tel should continue as the tives to streamline and expedite tech-
CIA’s entrepreneurial and innovative nology insertion into its IT architecture
venture facilitating the delivery of new and aggressively market In-Q-Tel’s ca-
technology to the CIA” (BENS, 2001, pabilities within the Agency (Director
p. v). of QIC and QIC Contracting Officer,
personal interview, February 21, 2002).
The QIC now informs users and stake-
PROBLEMS WITH THE IN-Q-TEL MODEL holders, early on, of promising tech-
nologies and solicits their input on the
The BENS report indicated, however, tailoring process. The newly consoli-
that there was room for improvement in dated Chief Information Officer (CIO)
the In-Q-Tel model, particularly regard- function at the Agency will also help
ing the relationship and communication coordinate and streamline the entire
between In-Q-Tel and the CIA and the process, from the generation of Prob-
implementation of new technology lem Sets to the final
within the CIA’s business processes. procurement of IT.
Most of the problems cited were a result Most notably, the “The QIC now
of inefficient government processes and DCI has established an informs users and
security challenges associated with in- independent solution stakeholders,
serting tested technologies into CIA sys- transfer fund specifically early on, of prom-
tems (software or hardware to be inserted earmarked for establish- ising technologies
and solicits their
must be approved by up to six review ing pilot programs, nor-
input on the
boards). Few problems were noted re- mally 12 to 18 months tailoring process.”
garding the actual functioning of In-Q- in duration, to imple-
Tel as a corporation, its relationship with ment new technologies
outside technology firms, or its ability within the Agency. A potential user is pro-
to attract and invest in new technologies. vided solution transfer funding to test a
The report did indicate, however, that promising technology in his system; the
due to ineffective marketing within the user is not required to deplete his own
CIA, key users and stakeholders were budget to support the pilot program.

53
Acquisition Review Quarterly — Winter 2003

If the pilot is successful, the Agency Technology Transfer (STTR) program


will issue a separate contract to buy the were established to provide cutting-edge
technology, either on a sole source basis technologies and innovative solutions to
or through a limited, best-value competi- DoD by tapping small U.S. technology
tion if more than one companies and research institutions. In
source is identified. Cur- order to ease burdensome statutory and
“In-Q-Tel
rently, there are seven regulatory restrictions associated with
continues to
active pilot programs government contracting, 10 U.S.C. 2371
evolve as a
useful, effective within the Agency and and Section 845 authorities were granted
tool for the CIA.” three more to be launched. to DARPA, and ultimately the military ser-
Finally, the QIC and In-Q- vices, to allow for the award of vehicles
Tel are in the process of other than Federal Acquisition Regulation
revising their performance metrics to focus (FAR) contracts to firms that do not nor-
on areas such as the acceleration of tech- mally work with the government. Under
nology insertion rather than on the num- 10 U.S.C. 2371, authority is granted to
ber of proposals received or the number issue non-FAR agreements, termed “Other
of contracts issued. Transactions,” for basic, applied, or ad-
Despite the need for continuous im- vanced research. The National Defense Au-
provement in the areas of coordination thorization Act for FY94, Public Law 103-
and communication with its customer, sig- 160, Section 845 grants the authority to
nificant progress is being made in these carry out prototype projects without ap-
areas. In-Q-Tel continues to evolve as a plying several procurement-unique stat-
useful, effective tool for the CIA. utes.
The effectiveness of each of these tools
in attracting cutting-edge, commercial tech-
INTRODUCTION OF NEW nologies to the federal government, and how
TECHNOLOGIES WITHIN DOD each compares to the In-Q-Tel model, is
examined below.
There are several organizations, pro-
grams, and authorities within DoD that ORGANIZATIONS THAT BRING
were created to encourage commercial NEW TECHNOLOGIES TO DOD
firms to partner with the federal govern- DARPA handles projects, each lasting
ment and to introduce new technologies an average of three to five years, de-
to military systems. These arrangements signed to ensure that the United States
have met with varying degrees of success. maintains a lead in developing state-of-
The Defense Advanced Research Projects the-art technologies to meet military chal-
Agency (DARPA), Federally Funded lenges of the future. In accordance with
Research and Development Centers its charter, DARPA investigates ideas and
(FFRDC), and Research Laboratories are performs fundamental research/develop-
all chartered to develop state-of-the-art ment and prototyping efforts but does
technologies. not carry these efforts through to pro-
The Small Business Innovative Research duction. Appropriately chartered DoD
(SBIR) program and the Small Business agencies must procure commercial or

54
The CIA’s In-Q-Tel Model

military products that incorporate the with high-tech firms. Although DARPA
technologies. DARPA establishes agree- plays a critical role within DoD, it does
ments with industry and educational in- not perform the same function for DoD
stitutions using FAR contracts as well as that In-Q-Tel performs for the CIA.
Section 845 prototyping agreements and FFRDCs are privately administered,
Other Transactions (primarily for consor- nonprofit organizations sponsored by the
tia arrangements). DARPA has had mixed government (DoD and civilian agencies),
success in attracting non-traditional firms with restrictions on their activities to pre-
to do government business. serve their independence and objectivity.
The DARPA Web site, last updated in FFRDCs work as strategic partners with a
June 2002, indicates that the majority of sponsoring government agency, as well
recent Section 845 prototyping agreements as with industry and educational institu-
were awarded to large traditional defense tions, to solve complex technical problems
contractors (The Defense Advanced Re- (BENS, 2001). FFRDCs are tied to
search Projects Agency [DARPA], 2002). government contracts, are part of the gov-
However, it is likely that small, commer- ernment culture, and tend to be too slow
cial firms may be second- or third-tier sub- and bureaucratic to react flexibly to the
contractors working under non-FAR dynamic environment that surrounds IT
agreements with the primes. Typically, (BENS, 2001). Historically, FFRDCs hire
universities lead the consortia under engineers to work in-house — they rarely
DARPA’s Other Transaction arrange- partner with non-traditional commercial
ments; however, it is also likely that small, firms. Although both In-Q-Tel and
high-tech firms participate on the teams. FFRDCs are nonprofit organizations
Clearly, DARPA and In-Q-Tel have sig- bound to the federal government through
nificantly different missions. DARPA’s role contractual arrange-
is to develop the very best technologies ments, they have radi-
“Historically,
to support future military requirements, cally different cultures FFRDCs hire
with possible commercial applications to and methods of doing engineers to work
follow. In contrast, In-Q-Tel’s focus is to business. in-house — they
tap existing or potential commercial tech- Government, univer- rarely partner
nologies that can be tested and used, in sity, and corporate labo- with non-
innovative and creative ways, to solve ratories generally work traditional
current IT problems within the Agency. on technical solutions commercial
In choosing technologies, commercial in-house. Often devel- firms.”
applications are key to In-Q-Tel, but not opment cycles are
necessarily to DARPA. Based on the pub- lengthy and costs are high. Laboratories
lished statistics, DARPA tends to contract provide new technologies to DoD in ac-
or establish agreements with traditional cordance with the terms of contracts,
defense firms or universities rather than grants, or cooperative agreements; how-
with small commercial firms; small com- ever, the mission of laboratories is gen-
mercial firms are potentially second- or erally different from In-Q-Tel’s mission
third-tier subcontractors. To date, In-Q- of partnering with commercial compa-
Tel’s commercial arrangements are solely nies to leverage off of existing private

55
Acquisition Review Quarterly — Winter 2003

sector research and development (BENS, was funded at $31 million in FY2000
2001). Most laboratories are more oriented (Office of the Secretary of Defense,
toward developing an in-house product 2002).
to satisfy a government requirement rather Both of these programs function like
than seeking a commercial solution. In-Q-Tel in that they encourage non-tra-
ditional firms and research institutions to
PROGRAMS THAT BRING provide new technologies to the federal
NEW TECHNOLOGIES TO DOD government. However, the SBIR and
The Small Business STTR programs require the issuance of
Innovative Research government contracts and the transfer and
“The high-tech Program funds funda- obligation of funds, a time-consuming,
firms are prima- mental research and rigid process at best. These government
rily attracted by development projects programs are not implemented with In-
the technical that support DoD re- Q-Tel’s speed and agility. In addition, In-
review performed Q-Tel searches out, funds, and tests only
quirements and also
by In-Q-Tel and technologies that have definite commer-
have potential in the
the prestige of cial applications; the high-tech firms
having the CIA commercial market-
place. The firms solic- partnering with In-Q-Tel are expected to
as a customer….”
ited by DoD are small make significant amounts of money on the
companies organized commercial market, much more than the
for profit that have a maximum of 500 limited amount of money that In-Q-Tel
employees. Awards are offered in two provides.
phases. Phase I awards are six months The high-tech firms are primarily at-
in duration and funded up to $100,000; tracted by the technical review performed
Phase II awards are two years in length, by In-Q-Tel and the prestige of having the
funded from $500,000 to $750,000, CIA as a customer, not the small amount
and result in fabrication of a prototype. of funding provided for research and de-
After Phase II, the firms must work in- velopment. This is not necessarily true of
dependently to market their products for the companies responding to the SBIR
production. A survey of the firms that solicitation, which may rely solely on gov-
were awarded contracts over the past ernment funding for their projects. Under
fiscal year reveals a mix of non- the SBIR and STTR programs, the pre-
traditional and DoD small businesses requisite for contract award is not com-
participate in the program. mercial viability; government interest rests
Congress established the Small Busi- primarily with the military application of
ness Technology Transfer Program in the technology.
1992 to fund cooperative research and
development projects involving small EFFECTIVENESS OF DOD’S ORGANIZATIONS,
businesses and research institutions. PROGRAMS, AND AUTHORITIES
The purpose of the program is to en- DoD has a number of tools — organi-
able research institutions to move their zations, programs, and authorities — that
technologies to the public and commer- have introduced new technologies into
cial sectors. The DoD STTR Program military systems with relative success.

56
The CIA’s In-Q-Tel Model

However, none of these approaches has Norman Augustine and other private
enabled DoD to leverage off of success- citizens formed In-Q-Tel with the under-
ful commercial technologies in the way standing that it would specifically sup-
that In-Q-Tel has worked for the CIA. port CIA activities. The legal basis for
In-Q-Tel represents a combination of its formation is the same as for any other
government and commercial structures. nonprofit corporation. The Agency then
Although it is an independent corpor- chartered and funded In-Q-Tel through
ation, it is contractually bound to the a government contract. The CIA’s con-
federal government much like the tracts with In-Q-Tel are based on the
FFRDC model and its strategic objectives FAR, although the Agency relied on Sec-
are intertwined with the strategic objec- tion 8 of the CIA Act of 1949 to waive
tives of its only customer. Unlike any certain provisions that otherwise would
purely DoD organization or program, have applied. The CIA believes that
though, it has a commercial culture and funding an organization like In-Q-Tel
extended reach into the commercial com- using 10 U.S.C. 2371 authority would
munity. No DoD organization, program, allow even more flexibility, since under
or contracting authority fills the unique Other Transactions, most FAR regula-
niche filled by In-Q-Tel. The addition of tions are optional, intellectual property
a “venture catalyst” firm to the current provisions can be crafted, and most pro-
DoD structures would provide one more curement-specific statutes are waived. It
effective tool to enable the military to appears that there are no statutes or regu-
move into the information age. lations that would prevent DoD from es-
tablishing an In-Q-Tel
type arrangement.
ESTABLISHING A “VENTURE CATALYST” According to the “No DoD
FIRM FOR DOD BENS report, total organization,
General and Adminis- program, or
contracting
When assessing the feasibility of es- trative costs for In-Q-
authority fills
tablishing an entity based on the In-Q- Tel were approximately the unique niche
Tel model, DoD must consider whether $12.6 million for the filled by
its establishment would conflict with any first year, including In-Q-Tel.”
statutes or regulations, the cost of estab- start-up costs of ap-
lishing a similar firm, and the organiza- proximately $2.5 mil-
tional buy-in that would be required for lion, and annual recurring costs, includ-
success. Based on advice from internal ing salaries for employees and compen-
attorneys, as well as an independent law sation for Board Members of approxi-
firm, the CIA made the determination that mately $10.1 million (BENS, 2001). In
In-Q-Tel lawfully could be formed, char- order to establish an In-Q-Tel-like en-
tered, and funded with no special legisla- tity, DoD would need approximately
tion other than the appropriation of funds $13 million for start-up and adminis-
(Director of QIC and QIC Contracting trative expenses as well as additional
Officer, personal interview, February 21, funding for mission delivery (programs,
2002). prototypes, etc.), equity investments,

57
Acquisition Review Quarterly — Winter 2003

and miscellaneous items. Total CIA Board of Directors who have exper-
funding for In-Q-Tel was $28.7 million tise in the technology areas.
in FY99, $37.27 million in FY00, and
$33 million in FY01 (BENS, 2001). • Remember that a company like In-
QIC and In-Q-Tel employees pro- Q-Tel has a high overhead and is
vided the following “lessons learned” human- capital intensive, because of
that might be valuable to a government the cadre of engineers who test tech-
agency:7 nologies. If the technology is less
complex, the overhead may be re-
• Establishing a business and opera- duced.
tional relationship with a firm like In-
Q-Tel is not easy. You need support • Once a decision is made to establish
from the Head of the Agency down a company like In-Q-Tel, commit-
the chain of command. Everyone ment and patience is necessary.
needs to be committed to success.
In order to manage risk, avoid pitfalls,
• You need the ability to think outside and benefit from lessons learned, an
the box and manage rather than organization choosing to establish an
avoid risk. entity similar to In-Q-Tel should consider
consulting with (or even employing)
• Initially, you must start with a well- experienced CIA and In-Q-Tel personnel
defined, bounded set of technologies to establish a business plan geared toward
to go after. You can always expand success.
the Problem Set to incorporate new
technologies later.
RECOMMENDATION
“You need the • Your organiza-
ability to think tion may need a culture Establishing a “venture catalyst firm”
outside the box change — if you are would greatly benefit DoD by providing
and manage going to insert new a new approach to developing and insert-
rather than technologies from the ing commercial technologies into military
avoid risk.” outside, the idea that systems. As an addition to rather than a
“if it isn’t developed replacement for existing programs and
in-house it isn’t good” authorities, this model would enhance
must change. DoD’s ability to attract and tailor new
technologies to provide innovative solu-
• When starting to work with this type tions; establish an efficient, flexible
of firm, limit your technologies. At conduit for contracting with cutting-
first, pick a well-defined technology edge firms; enable DoD to leverage off
that is somewhat easier to transfer to of the commercial sector technologies
ensure success. Once you pick the that might not be available within the
technology, pick members for the limitations of the federal acquisition

58
The CIA’s In-Q-Tel Model

system and with federal funding alone; an arrangement similar to the arrange-
and further encourage development of ment between the CIA and In-Q-Tel. The
dual use technologies. stumbling block is whether or not DoD
This model applies not only to IT, but has the ability to transform its culture to
also to other commercial technologies that accommodate the innovation, risk, and
support the DoD mission. There are no flexibility that must accompany this new
readily apparent legal or financial barri- approach to technology insertion if it is
ers, provided that funds are appropriated, to succeed.8
that would prevent DoD from establishing

Wendy Molzahn is a program manager with the Department of the


Navy. She has also performed duties of a contract negotiator,
contracting officer, and chief of the contracting office. Ms. Molzahn is
a member of the Acquisition Professional Community. She received
a B.A. from Smith College, an M.A. from the University of Rochester,
and, in June 2002, an M.S. degree in national resource strategy from
the Industrial College of the Armed Forces.
(E-mail address: w.molzahn@erols.com)

59
Acquisition Review Quarterly — Winter 2003

ENDNOTES

1. In January 2001, the BENS estab- 6. The eight steps of the “Q” Process,
lished and supported an independent although all are not addressed in this
panel to assess In-Q-Tel’s strategy, paper, are as follows:
structure, processes, technologies, Q0 Agency Needs Definition
and legal foundation. This assess- Q1 Portfolio Management
ment was required by a Congres- Q 2 Contracting
sionally Directed Action in FY2000 Q 3 Contract Definition and Demo
Conference Committee markup lan- Q 4 Prototype and Test
guage, to perform “an independent Qp QIC/IQT Piloting
cost versus benefits assessment” of Qb End-User Piloting
CIA’s In-Q-Tel venture. The panel’s Qd Deployment and Agency
report was submitted in June 2001 Acquisition (BENS, Appendix
(BENS, page iii). A).

2. Quoting Charter Agreement, July 7. Interviews with Director of the QIC


1999. The Charter Agreement has and QIC Contracting Officer, Febru-
since been amended. ary 21, 2002 and Interview with Chief
Operating Officer and Director, Tech-
3. Quoting Charter Agreement, July nology Assessment at In-Q-Tel,
1999. The Charter Agreement has March 1, 2002.
since been amended.
8. The Department of the Army is cur-
4. A detailed discussion of the contrac- rently considering this issue. The
tual and funding arrangements be- Army Science Board Venture Capital
tween the CIA and In-Q-Tel is found Panel issued a report on July 25, 2001
in the section of this paper entitled, stating that existing programs and
Establishing a “Venture Catalyst” authorities provide enough flexibility
Firm for DoD. to introduce state-of-the-art, critical
technologies to the Army. However,
5. Although In-Q-Tel has not yet seen a the FY02 DoD Appropriations Bill
major Return on Investment, a Memo- and Congressional language earmark
randum of Agreement between In-Q- $25 million for the purpose of es-
Tel and the CIA defines the alloca- tablishing a venture capital invest-
tion of profits traceable to CIA fund- ment corporation for the Depart-
ing: 50 percent of profits go to In-Q- ment of the Army. The Army is cur-
Tel Problem Sets and 50 percent to rently assessing the risk of estab-
strategic IT initiatives defined by the lishing this type of entity and at-
CIA. tempting to define a technology
problem set (Army Science Board
Venture Capital Panel briefing, Ver-
sion 5.0, dated July 25, 2001).

60
The CIA’s In-Q-Tel Model

REFERENCES

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6, 8, 13, 15, 38, 46–48. ness plans for the CIA. Washington
Business Journal. Retrieved Janu-
Cortese, A. (2001, December 30). Sud- ary 27, 2003 from http://
denly Uncle Sam wants to bankroll washington.bizjournals.com/
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Defense Advanced Research Projects Loeb, V. (2000, March 1). Silicon Valley
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In-Q-Tel. (2002). Material retrieved Office of the Secretary of Defense, Ac-


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com/about/index.htm terial retrieved March 15, 2002 from
www.acq.osd.mil/sadbu/sbir/
Johnston, N. (2001, June 25). Intelliseek
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61

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