September 29, 1999
C.I.A. to Nurture Companies Dealing in High Technology
By JOHN MARKOFF
ALO ALTO, Calif. --
Hoping to insure that the nation's
spies have the latest information
technology in the rapidly changing
Internet age, the Central Intelligence
Agency has established a venture
capital company to nurture high-tech
companies, company executives and
former C.I.A. officials said.
The C.I.A. has chosen a veteran
Silicon Valley software executive to
head the effort, which has an office in
Washington with eight employees
and will have a second office in Silicon Valley.
With a nod to nostalgia for the
mythic gadget-laden spycraft of the
James Bond era, the agency has
named its new nonprofit venture In-Q-It, in a reference to Major Boothroyd, a.k.a. Q, the master technologist whose basement laboratory develops advanced gadgets for the fictional British super-agent. It will be
headed by Gilman Louie, an executive in the Hasbro toy company's online business group.
spies up-to-date in
the age of the
The decision by the nation's spy
agency to turn to Silicon Valley for
technology assistance underscores
the growing diversity of high-tech
companies and the accelerated development of computer technologies.
Unlike in the cold war, when the most
advanced technologies trickled down
from a handful of supercomputer
companies, the most powerful technologies are increasingly being developed first by consumer electronics companies that now have vast
markets to finance the developments
of powerful systems and applications.
In-Q-It is being financed with $28
million appropriated last year by
Congress as part of the C.I.A.'s budget, which is classified. The company
will seek joint projects and investments in crucial technology areas.
"There is a tremendous information explosion today," said John McMahon, former deputy director of the
C.I.A. and an In-Q-It board member.
"As a result, the agency was always
one step behind. The agency got the
idea that maybe what it needed was
something that would not only appreciate its needs but be an umbilical
cord that was plugged in to the
brightest minds in the Valley."
Louie said Tuesday that the purpose of the new company would be to
move information technology to the
agency more quickly than traditional
Government procurement processes
allow. The agency, he said, was
struggling with many of the same
aspects of the Internet that are vexing to other Web surfers, including
privacy and security.
"The current model isn't working," Louie said. "The technology world has totally changed, and
one day the C.I.A. woke up and realized they needed to go through the
The new company will supply venture capital in some cases, and in
others it will hire contractors or
partner with entrepreneurs in four
areas: integrating Internet technology and applications into the C.I.A.'s
work; developing new security and
privacy technologies; nurturing data
mining technologies to take better
advantage of the agency's vast storehouses of records, and modernizing
the agency's computer systems.
Louie said that none of In-Q-It's work would be classified and that
the organization would not be limited
to the four areas he outlined. In contrast to many of its other activities,
he said, the agency was taking pains
to make the activities of In-Q-It highly visible and public.
That stands in striking contrast to
the agency's past approach to high-tech projects.
For many years there
have been reports that the United
States intelligence community created shell companies when it had a
particular high-technology problem
Indeed, the C.I.A. worked secretly
with Howard Hughes during the
1970's when it needed to develop specialized salvage technology to retrieve a sunken Soviet nuclear submarine in the Pacific Ocean.
While In-Q-It will operate on a
nonprofit basis, Louie said his
intention was to invest in such a way
as to make the organization self-sustaining.
Jeffrey H. Smith, the new company's legal counsel and former general counsel to the C.I.A., said, "The
Government will have the opportunity to use the intellectual property
developed by In-Q-It for Governmental purposes, but In-Q-It will own and
have the ability to use the technology
it develops for commercial purposes."
Louie said that while this was
not the first effort to find innovative
ways to move new technologies
quickly to the Government's needs,
he believed it was the first time a
Government agency had adopted a
venture financing effort that mimicked a private sector model.
Venture capitalists said Tuesday that
the problem the C.I.A. faces is a
challenge faced every day by large
organizations: attempting to keep up
with the nimble pace of the Valley's
technology start-up companies.
A number of large multinational
companies have in recent years set
up investment funds in the valley in
an effort to tap into the entrepreneurial spirit of the region.
"There are a number of models on
which the jury is still out," said
James Breyer, managing partner of
Accel Partners, a venture firm in
Palo Alto, Calif.
Companies like Lucent Technologies and the AT&T Corporation
have become venture investors in
the valley in recent years, he noted,
and SRI Research International had
less success in trying to spin out its
research projects with an internal
"The most important aspect is to
have an outstanding outside management effort overseeing the process,"
he said. "It appears in this effort the
C.I.A. has chosen well."
Previous Government efforts at
financing technology have been highly focused efforts to promote the
development of specific technologies
either needed to keep the nation competitive or to meet national security
For example, during the 1970's
through 90's various military research agencies like the Defense Advanced Research Projects agency
and the Office of Naval Research
financed academic and corporate
projects not as investments but as
In the early 1990's, the Government financed the Sematech computer consortium in an effort to maintain an independent semiconductor
equipment industry in the United
States, which was being threatened
by Japanese and European competitors.
Louie, 39, said Tuesday that he
would work on both coasts and was
now looking for an office in Silicon
Valley. He said he had become involved in the new company after
meeting a headhunter from Heidrick
& Struggles at a mock-aerial dogfighting contest this year.
Louie is a lifelong computer
gaming aficionado who a year ago
sold his computer gaming company,
Microprose, to Hasbro. He has been a
widely known figure in the Silicon
Valley software world since creating
his first computer gaming company
while he was a student at San Francisco State University in the early
Among the new company's board
members are John Seeley Brown,
director the Xerox Corporation's
Palo Alto Research Center; Lee
Ault, director of Equifax Alex
Brown; Stephen Friedman of Goldman Sachs; Norm Augustine, chairman of Lockheed Martin, and William Perry, former Secretary of Defense.