Home Technology When the government is the customer (some things to keep in mind) • businessroundups.org

When the government is the customer (some things to keep in mind) • businessroundups.org

by Ana Lopez
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Years after Google pulled out of a Pentagon government contract after thousands of employees protested that its technology could be used for deadly drone targeting, Silicon Valley has much less difficulty developing technology for the US Department of Defense.

That’s what four investors – Trae Stephens of Founders Fund, Bilal Zuberi of Lux Capital, Raj Shah of Shield Capital and former In-Q-Tel president Steve Bowsher – said at a startup event for military veterans today in San Francisco. Shah said of the shift in attitude he’s personally observed, “The number of companies, founders and entrepreneurs who are broadly interested in national security — I’ve never seen it at this level.” Bowsher argued that Silicon Valley’s “unwillingness to cooperate with the [Defense Department] and intel community” has long been “exaggerated,” adding that during its 16 years at In-Q-Tel, the CIA’s venture capital fund, his team has met with about 1,000 companies each year and only “five to ten turned around’. us down, saying they weren’t interested in working with the clients we represent.

We’ll have more of the panel in businessroundups.org+, but we want to share parts of our conversation that focused on things to consider when selling to the US government for founders who may be considering diversifying and selling their products and applications to both commercial customers as well as the US military.

For example, we talked to them about mission creep, which is how a startup that starts working with government can make sure it doesn’t spend most of its time on government because of new requests (and rather ignore commercial clients in the process ).

Here, Trae Stephens — co-founder of Anduril, a maker of autonomous weapons systems that has aggressively done business with government agencies from the start — said that this sort of gradual shift in objectives is “exactly what makes it difficult to do both. [cater to civilian enterprises and the government] in an early stage.” He said that many of the programs that [enable founders to] doing early business with the Department of Defense requires some such as DoDization of your product for that use case.

While In-Q-Tel supported Anduril early on, for which Stephens said he is grateful, he offered that many companies that take money from the government, including through the Small Business Innovation Research (SBIR) program, “stop being building all these very specific workflow steps that take them away from the commercial ones that are necessary to really make the business work (Stephens noted in that regard that very few outfits can go after the military exclusively like Anduril did, because it “takes so long to go into production with the DoD that you basically have to be able to raise an infinite number of startup dollars; otherwise the company will die.”)

Related to this, we asked how so-called dual-use companies handle their intellectual property rights once they have started selling to the government. For example, you can imagine a scenario where a technology helps the NSA identify certain types of people making certain types of calls, and while there are commercial uses for this technology, the government doesn’t want it released to adversaries. Is there a way to arrange that in advance we wondered?

There was no simple answer here other than: get the right help and do it as soon as possible.

Zuberi shared a cautionary tale about one of Lux’s own portfolio companies. Said Zuberi, “I have a company that received $100,000 [National Science Foundation] scholarship. Two men started it in my office. I didn’t think much about it; I liked having it on their resume. Then they started doing a series B raise, and one of the [interested] firms are pushing for some other contracts [the team might] have, and there was a clause in that NSF grant that said, ‘Hey, if the government needs it [what you’re building], we can use it.’ So we had to wait six months while we negotiated with [someone] to the NSF who didn’t give a damn about getting that right back. I would have paid them double the scholarship to make it go away, but they said, ‘No, you can’t do this, we can’t go back.’ So you can getting in trouble.

Again, we’ll have more from this discussion soon, including about AI in military applications; we learned a lot – hopefully you will too.

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