When the government is the customer (some things to keep in mind)


When the government is the customer google withdrew from a Pentagon government contract five years ago after hundreds of workers objected that the company’s technology would be used for deadly drone targeting.

However, Silicon Valley is now much less reluctant to provide technology for the US Department of Defense.

Four investors, including Trae Stephens of Founders Fund, Bilal Zuberi of Lux Capital, Raj Shah of Shield Capital, and former In-Q-Tel president Steve Bowsher, made this statement today in San Francisco during a startup event for veterans. “The number of startups, founders, and entrepreneurs engaged in national security broadly — I’ve never seen it at this level,” said Shah of the shift in mindset that he has personally witnessed.

In his 16 years with In-Q-Tel, the CIA’s venture fund, Bowsher claimed that the “reluctance of Silicon Valley to work with the [Defense Department] and intel community” was always “overblown.” He added that his team has met with about 1,000 companies annually, and only “five to 10 have turned us down, saying they weren’t interested in working with the customers we represent.”

We’ll have more from the panel in TechCrunch+, but we wanted to share some of our discussion on Things to Consider when Selling to the U.S. Government in light of the possibility that startups with commercial clients may try to sell their goods and services to the U.S. military more frequently. (This is especially true for startups in automation, cybersecurity, and AI.)

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We discussed mission creep with the investors, for instance, which refers to how a business working with the government might prevent itself from spending the majority of its time catering to the government due to new requests — and neglecting earlier, commercial customers in the process.

This gradual change in goals is “exactly what makes it hard to do both [cater to civilian enterprises and the government] at an early stage,” said Trae Stephens, who also cofounded Anduril, a manufacturer of autonomous weapons systems that has aggressively courted business from government agencies from its inception.

Many of the initiatives that [allow founders to] conduct early business with the Department of Defense, according to him, “demand some, like, DoD-ization of your product for that use case.”

Although Stephens expressed gratitude to In-Q-Tel for its early support of Anduril, he added that many businesses that receive funding from When the government is the customer, including through its Small Business Innovation Research (SBIR) programme, “end up building all of these very specific workflow steps that take them away from the commercial businesses needed to make” the business actually function. ( In a similar vein, Stephens observed that few businesses, unlike Anduril, can focus solely on serving the military since “it takes so long to go into production with the DoD that you have to be able to fund.

In a related vein, we inquired as to how so-called dual-use businesses manage their IP rights after starting to sell to the government. Imagine, for instance, that the government does not want a piece of technology that the NSA uses to identify specific categories of people making specific types of calls to be made available to adversaries ,When the government is the customer despite the fact that it has commercial uses. We pondered whether there was a way to arrange that beforehand.

There was no simple solution in this case other than to quickly and correctly seek the appropriate assistance.

One cautionary tale Zuberi related involved one of Lux’s own portfolio firms. Zuberi declared, “I own a business that was awarded a grant from the National Science Foundation for $100,000. It was begun in my office by two guys. I didn’t give it much attention, but I did think it would be good to see on their résumé. There was a language in that NSF award that stated, “Hey, if the government wants [what you’re building], we may utilise it.” When they then proceeded to conduct a Series B fundraising, one of the [interested] firms performed due diligence on what other contracts [the team might] have. Therefore, we were forced to wait six months while attempting to recover that right from [someone] at the NSF who had no interest in doing so.

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