How to Optimize Having the Government as Your Strategic Partner

Stanford University March 14, 2007

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Pascal Levensohn Founder and Managing DirectorModerator Levensohn Venture Partners

Dan Kaufman Program Manager, DARPAFormer Co-COO, Dreamworks InteractiveFormer Executive Producer, Kalisto Entertainment

Gilman Louie General Partner, Alsop-LouieFormer CEO, In-Q-TelFounder, Spectrum Holobyte

Douglas Maughan Program Manager – DHS/S & TCyber Security R & D Program

Alan Wade Independent Director/ConsultantFormer CIO, Central Intelligence Agency andCIO, U. S. Intelligence Community

Today’s Panel

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Private-Public Partnerships are not Optimized

• Government agencies find it difficult to implement innovative, leading edge solutions to their IT Security problems, even when those problems have been prioritized and disclosed to the public.

• Best-in-Class emerging technology companies are equally frustrated in identifying government users for their products, even when they solve high priority government needs.

• Why?

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The Essence of the Problem

• Different Risk / Reward Profiles– Government agencies are very reluctant to depend on

critical products built by small and fragile companies who may change business strategies or even go out of business

– Small companies are equally reluctant to commit scarce personnel and financial resources to navigate the complex processes associated with selling new and innovative products to the government when the government has not articulated a need for them.

• (Government Request for Proposals (RFPs) are normally developed with specific solutions already identified in the RFP)

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The Essence of the Problem (continued)

• Different Relevant Execution Time Frames– Government procurement cycles are 12-24 months, while

the average IT Security shelf life for some products is 6-18 months.

– Government agency CIO’s have undefined roles when it comes to technology adoption and innovation– they lack budgets and process mechanisms for testing or adopting emerging technology solutions.

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The Essence of the Problem (continued)

• Misaligned Procurement and Integration Processes– Selling best-in-class IT Security products to the

Government early in their life cycle is even more complicated, as GSA schedules are optimized for the bulk purchase of commodity products, not for the early adoption of innovative technologies

– System integrators are similarly not educated in the innovation pipeline

– System Integrators are often allowed to specify the requirements for their government projects, avoid competitive bids, and avoid independent oversight or accountability for the efficacy of their work

• Consequently, technology vendors, system integrators, and government users often have misaligned interests

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Cultural Difficulties Present Obstacles to Resolving These Problems…

• Heard at a (Government) Water Cooler….– They’re too small…can they support what they sell?– They know their technology, not my problem…– If their stuff is so good, why am I the first to buy it?– Do they understand classified information?– Are they subject to foreign influence?– Have they already been tested, and have their government

certifications? My SI says that they can develop a similar but better solution.

– It’s great technology, but I can’t afford to change the requirements of my existing (3-5 yr) program… It’s already under contract to my SI, who, by the way, never heard of them…

– It’s not in my budget this year.

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Culture Clash– continued

• Heard at a (start-up) free soft-drink machine…– How many times do we have to talk to them?– Who actually makes decisions for them?– What problems are they really trying to solve?– Why are they trying to integrate my stuff with such old

systems?– What is an SI? SE? SETA? FFRDC? .. and who are all

these people who attend meetings?– Certification costs too much, are you kidding me?– If only they would be willing to pay to do a small pilot, they

could see how great we are…

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Culture Clash– continued

• Heard at a (start-up) free soft-drink machine…– What is the process for getting them to buy my technology?

(I don’t understand the GSA schedules)– My board doesn’t want to sell to the government – too much

trouble, off strategy– They want to change my core commercial product to meet

their unique needs that no one else wants– It requires too many certifications– They want to do a background check of all of my employees

(many who are not U.S. Citizens)

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Current Range of Options for Partnership with the Government

• None

– Treat the government as another sales channel and give up when it takes too long or uses too many resources (this is the Silicon Valley default choice)

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Current Range of Options for Partnership with the Government

• Non-equity based financial support for early stage companies– Grants from the National Science Foundation (NSF) to

companies as sub-contractors in partnership with academic institutions

• DARPA grants & contracts• DHS, DTO, and TSWG Research Programs• SBIR and STTR grants (company receives 70% of grant

with academic institution as 30% sub-contractor)• $100k Phase I; $750k Phase II

• CRADA (Cooperative R&D Agreement) between the public and private sectors

• e.g. Commerce Department’s CRADA with ICANN for improving robustness and security of internet DNS management

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Current Range of Options for Partnership with the Government (continued)

• Equity Investment– Should you take an equity investment from the Government?

• In-Q-Tel

• Early Technology Adoption Catalyst Programs– DeVenci (DOD)– OnPoint (US Army)

• Are alternative relationships with the large scale integrators an option?– DHS System Integration Forum Model

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Military Technology and Special Considerations

• What is the most constructive relationship that you can structure between former military and other government officials and your company?

• What are some of the special reporting relationships that can develop through a public-private strategic partnership?– Example of the oil & gas community– Cooperative research agreements and antitrust relief– National

Cooperative Product Research Act (NCPRA)

• What are some of the unique advantages of partnerships with the government?

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Military Technology and Special Considerations (continued)

• Common pitfalls faced by companies who partner with the government – No people on staff with security clearances– No certifications required to do government business– Absence of required special accounting systems– Lack of planning and familiarity with standard government

operating requirements– Lack of long term commitment to the sector by the board and

senior management of the company– Failure to understand the operating environment of the

government and quality control and security challenges

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Look Before You Leap

• Consider U.S. manufacturing content requirements for selling to the government– Rumblings that new restrictions on U.S. percentage content

and country of origin may become new requirements to do business with the government

• Know what your lanes are, and beware getting pulled out of them– Understand the mission of the agency you are talking to and

its requirements ahead of time– Articulate procurement specifications in a language that is

commonly understood between buyers and sellers– don’t assume domain expertise in technology across the table

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Look Before You Leap (continued)

• Understand who you are partnering with if you are working with an SI.

• Understand who your advocates are within an agency and the strategic/tactical importance of the program into which you are being integrated.

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Toward a New Type of Public-Private Partnership

• Who are the partners?• How can different interests be aligned?

• Pilot programs versus trials• Single vs. multi-agency

• Example of LOGIIC (Linking Oil & Gas Industry to Improve Cyber-Security), a public-private RDTE & T (research, development, test, evaluation, and transition) partnership

• What role can/should Congressional officials play?• Advocates for innovation and innovative technologies • Legal protection for collaborative R&D• Supporting the creation of an Information Security Interchange

(ITSI)

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Toward an IT Security Interchange?

• Today government sits in the caboose of the innovation train, whereas fifty years ago the U.S. government was the engine of that train.

• Is it possible to establish a collaborative government lane that serves as a fast on-ramp for review and a fast off-ramp for the implementation of innovative technology solutions to known, prioritized IT Security challenges?

• Can a public-private partnership initiative devise the best process to foster permanent, productive partnerships between industry and all levels of government?

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Toward an IT Security Interchange? (continued)

• How can we facilitate a simple, recurring forum for presentations to first adopter agencies from those companies that have passed the screening process?

• Can we craft a simplified process that facilitates getting IT Security products drawing on the GSA schedules?

• Can we establish first adopter common criteria to facilitate rapid, paid-pilot deployments of products and services from successful applicants in government environments (labs and/or other controlled deployments) in order to determine whether the product or service is worthy of full scale deployment?