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The Spy Who Funded Me

The CIA's great cash giveaway

By Jonathan Vankin

CALL ME A RELIC of an earlier age, but I always thought the CIA was supposed to be creepy. In the mid-1970s a conglomeration of congressional committees, crusading journalists and courageous ex-agents laid bare the CIA's three decades of dirty tricks and questionable clandestine practices. The time was right. Post-Watergate cynicism was de rigueur and "investigative reporter" was a trendy profession the way, say, "venture capitalist" is today. From its attempts to kill Fidel Castro by employing the Mafia to its science-fictionish brainwashing experiments (using LSD and similar drugs), the CIA cemented its reputation as a bunch of seriously weird and scary guys.

Now, like that slightly shifty brother-in-law who's always got some new scheme cooking, this same CIA wants to go into business with you. That is, if you have developed technology that the CIA can use to make adapting its spy-mission to the 21st century a little easier. The catch: to go into business with Silicon Valley, the CIA needs to leave out the weird and scary part. Right on Menlo Park's Sand Hill Road strip, the stretch of exclusive real estate that is to the venture capital business what Wall Street is to investment banking, sits In-Q-Tel. The 2-year-old concern appears to be just another fast-paced company in the high-powered world of high-tech high finance. Except for one fact, a fact that it doesn't make any attempt to conceal. In-Q-Tel is owned and fully financed by the Central Intelligence Agency.

This is the same Central Intelligence Agency that four decades ago set up shop at Veteran's Hospital in Menlo Park--not far from where In-Q-Tel sits today--and fed psychedelic drugs to volunteer subjects including Ken Kesey, who promptly embarked on a career as a counterculture guru after ingesting the CIA's LSD, and Jerry Garcia, who went on to start a band known as the Grateful Dead. The same CIA that secretly partnered with Silicon Valley giant Lockheed on such supersecret projects as the U-2 and TR-71 spy planes and which picked former Lockheed Martin CEO Norman Augustine to take charge of forming In-Q-Tel and later to sit on its board of directors.

It was the CIA that funded the Redwood City construction of the Glomar Explorer, a "mining ship" that was actually constructed for a top-secret CIA operation in which the Agency tried to raise a sunken Soviet submarine from the ocean's floor off of Hawaii. Though the Glomar was built in 1973, the "mining" cover story held until 1975, when it was exposed in the press.

The Agency has used spooky "proprietary," or front companies, for a long time to disguise its real operations, most famously the "Air America" airline, which reputedly flew drugs in and out of Southeast Asia during the Vietnam War--and later became the subject of a wacky Mel Gibson movie. The CIA has also channeled plenty of money over the 52 years of its existence to "real" companies, but the phrase "funded by the CIA" was never something that turned up in press releases and annual reports.

This shady history of CIA involvement in the legitimate business world is bound to throw suspicion on the Agency's venture capital venture. But In-Q-Tel is not a "front" company, at least not in the usual sense. The CIA makes no attempt to disguise its involvement in In-Q-Tel--in fact, it has no qualms about publicizing the connection.

The CIA, to remain a good spy agency in the information era, needs technology to help gather and organize intelligence information. It needs search engines that can scour, in split seconds, the gigabytes of multimedia content stored in the Agency's intelligence databases--information that is worthless without the tools to search and organize it.

It needs cloaking devices that let agents surf the Internet undetected, with no residue of an IP fingerprint. The CIA needs security software to copy-protect sensitive files and technology that will organize the unimaginable amount of data collected by the major intelligence arm of the world's most powerful nation. In-Q-Tel's job is to get that technology, even if it is not developed yet. That is something the CIA could never do on its own through the conventional, bureaucracy-bound government procurement process.

In-Q-Tel has not had a problem finding technology companies eager to do business with the CIA. (See sidebar for a summary of In-Q-Tel's investments so far.)

Rather than needing to sell itself to the valley, this CIA operation sits back and lets the proposals come rolling in by the hundreds. If In-Q-Tel is, even partly, a public relations move by the CIA, it is working. At least in Silicon Valley. Of course, when you're trying to brush up your image, it helps when you're handing out money. Especially to cash-starved startups.

So is In-Q-Tel the harbinger of a younger, hipper CIA?

"It is!" Agency spokesperson Anya Guilsher told me. "We're definitely adapting with the times. Information Technology is everybody's future, one way or the other. We're definitely in touch with that group of people and we're actively trying to recruit people with specialties in that area."

The company's friendly, if stagnant, website (www.in-q-tel.org) attempts to reinforce that image--at least it did until recently, when it was redesigned and it dropped the stylish group photo of In-Q-Tel's largely Gen-Xish staff clad in all-black slacks and turtlenecks.

One of the young, hip people is 40-year-old Gilman Louie, whom the CIA recruited to serve as In-Q-Tel's president and CEO. Louie made his mark and presumably his fortune in the valley as the creator of the "flight simulator" video game Falcon. A fourth-generation Chinese-American, Louie's father did duty in the Army Air Corps during World War II. Louie was chairman of Spectrum Holobyte, the company he founded, which manufactured not only Falcon, but such other legendary computer games as Tetris, Civilization and Colonization. In the apparently not very politically correct world of war game sim buffs, Louie was known by the handle "Chopstick." When the CIA plucked him into public service, Louie was chief creative officer at Hasbro, the toy-making giant that bought his company for a reported $70 million. Most of In-Q-Tel's 20 employees are Louie's age or younger.

Louie says that he and most of his staff plan to stay with In-Q-Tel for "two or three years" then give way to new people, "so there will always be fresh blood, people who understand the latest technology. We don't want people to become lifers in our organization. If you become a lifer, you're yesterday's news."

Was Louie, who started his first company at age 21 in his parents' home with help from a second mortgage on their home, connected with the CIA previously? He says no.

(In fact, he was hired for the In-Q-Tel job through a headhunter.)

"It was the last thing I ever would have thought of," he asserts. "I come from the toys and games industry. I've been an entrepreneur all my life. I was shocked that the CIA would approach someone like myself to even do this thing. Traditionally, you would think they would go after some well-established figure in the defense industry. But what the board of directors said was, 'If you want to do something out of the box, you've got to get someone out of the box to run this thing.'"

So here he is, conducting an airline-bound existence between Silicon Valley and the Beltway as he meets with aspiring entrepreneurs out here who want a share of CIA cash and his CIA and Washington overseers who monitor how he's investing the government's money back there.

"I really live on United Airlines," says Louie. "I only stop over in San Francisco and Washington. I spend a lot of time on the road. I have to visit with these companies. I have to spend time in Washington so I can understand people's problems. And I have to spend time in the valley so I can understand what the potential solutions would be."

Apparently, getting into bed with the CIA is not seen as in any way suspect in Silicon Valley.

"It's sort of self-selecting," says Louie. "If you don't want to deal with the CIA, you're probably not going to submit me a business plan." But he has received something like 500 business plans in 18 months. "What was surprising was the number of companies that opted in. They view the CIA as a way to really push their technologies."

"There are some people who would not want to work for a company that's funded by the CIA," says In-Q-Tel Vice President Jeannie Seelbach. "Also, some companies would not want to take CIA money. But the people who are here and the people who come seeking investment dollars just think it's kind of cool."


Taking The Money: In-Q-Tel has made 10 investments to date, mostly in companies developing Internet security products


Illustration Heeere, Little Startup

FOR MOST OF THE CIA's existence it has been under the control of an "old-boy network." Guys who came out of the Ivy League and what used to be called the Eastern Establishment. Guys who join private boys' clubs with names like Skull and Bones and use phrases like "New World Order" with neither irony nor alarm. Guys like George Bush. These were middle-aged men with strong roots in the espionage establishment. If they hadn't been spies in World War II, they came of age at the height of the Cold War.

Ever since the Soviet Union closed up shop nearly a decade ago, shutting down the Cold War and, with it, the Central Intelligence Agency's ostensible rationale for its more offbeat activities, the CIA has groped about for a new persona. About 4,000, or 20 percent, of the Agency's estimated 20,000 employees dropped off the payroll after the East-West conflict evaporated, lost to budget cuts, enticing private sector salaries or simple lack of interest. (The numbers are from press reports; the CIA's actual employment figures are classified.) When George Tenet took over as Director of Central Intelligence in 1997, he turned that around with a campaign to remake the CIA's image. The Agency took out a full-page ad in several magazines. "Do you have what it takes?" the ad demanded. What it takes, according to the ad copy, is an "adventurous spirit," a "forceful personality" and a college degree.

The CIA took its recruiting effort to the web. Go to www.cia.gov/cia/employment/ciaeindex.htm to see the CIA's "employment" page, featuring an animated gif of an eye undergoing a retinal scan to gain "access." If you're looking for a really interesting job, go to www.cia.gov/cia/employment/operational.htm to see the job postings under the heading "Clandestine Operations." The CIA added those listings to its website last August.

Tenet stepped up recruiting drives at job fairs and on college campuses. When the CIA tried that 15 years ago, it was greeted by angry student protests, most famously involving Amy Carter and her buddy Abbie Hoffman, who were arrested during a sit-in at the University of Massachusetts in 1986. Things are different now. The CIA is becoming contemporary. It is becoming cool. Or trying to, anyway.

What, I ask you, is cooler than throwing money around Silicon Valley? At the turn of this particular century, doesn't every strapping young buck want to grow up to be a high-tech venture capitalist? In 1999, the CIA put Tenet's most "out-of-the-box" (a big buzz-phrase for the revised CIA) brainchild into operation. In February of that year, the Agency's "Enterprise for Information Technology Solutions" incorporated a venture capital company owned by the CIA. The company was called In-Q-It, renamed In-Q-Tel 11 months later after Intuit Chairman Scott Cook told Louie that the names of their companies were too similar. The "In" and the "Tel" are self-explanatory. The "Q," believe it or not, was interpolated in honor of the James Bond gadget guy, called "Q" in all of the Bond movies.

In-Q-Tel scored office space on Sand Hill Road, the upscale strip of rather tastefully designed office parks near Stanford University. The little company, backed by 84 million taxpayer dollars, is situated in a complex at 2440 Sand Hill Road. The multibillion-dollar Kleiner Perkins Caufield & Byers, perhaps the heaviest hitter in the VC game, is located just a traffic light or two down the road. Obtaining the highly sought, ultraprestigious address went a long way in encouraging the valley to take In-Q-Tel seriously. How did they do it?

"Just luck," says Seelbach. "We were in the right place at the right time." No covert string-pulling?

"No," she states.

In-Q-Tel also has an East Coast nerve center in Arlington, Va. That gives it closer proximity to the CIA's Langley headquarters and to Washington, where In-Q-Tel's funding must be approved by Congress as an item in the CIA's annual budget. In-Q-Tel was started under the Clinton administration, of course. But President George W. Bush's decision to retain Tenet as DCI seems to indicate that the new administration will back the In-Q-Tel idea as well.

"This program has support on both sides of the aisle," Louie asserts, "because the consequences of the U.S. government not being able to keep up with the commercial world are pretty nasty."

In fact, Tenet is usually ascribed the credit for pushing the idea of a CIA-operated Silicon Valley firm.

"I don't know whose idea it initially was," says Guilsher. "But if you describe it as an initiative from the director, that would be a good way to describe it."

In fact, according to an article in the Winter 2000 issue of Defense Intelligence Journal by Rick E. Yannuzzi, a former member of the CIA team that developed In-Q-Tel, "the origins of the concept that became In-Q-Tel are traceable to Dr. Ruth David, a former CIA Deputy Director for Science and Technology." Yannuzzi's article, the closest thing to an "official" history of In-Q-Tel, says that David and her deputy, Joanne Isham, "were the first senior Agency officials to understand that the information revolution required the CIA to form new partnerships with the private sector and design a proposal for radical change." (David has since left the CIA to become CEO of ANSER, a not-for-profit research firm that works for the Air Force and other government bodies. Isham was promoted to David's old job in January 2000.)

The "radical" proposal is simply this: Technology in the Internet era advances faster than the usual government procurement process can handle; therefore, the CIA should set up a company that operates in the private sector, giving the CIA access to new technology before it is developed, rather than two years after it hits the market.

In-Q-Tel has made 10 investments so far and while, like any VC firm, it looks to hit the big "home run," its priority is not profit (In-Q-Tel is, in fact, a nonprofit corporation) but serving the CIA. The Agency has an In-Q-Tel Interface Center based in Langley and staffed by CIA agents. The Interface Center surveyed the Agency's information technology requirements and came up with a "problem set" for In-Q-Tel to deal with (document protection, information organization, search, etc.). In-Q-Tel provides seed money for commercial, unclassified products that address CIA problems. The CIA gets a license to any technology developed with In-Q-Tel funding. In-Q-Tel invests only in projects that have a dual purpose: commercial applications as well as intelligence uses. It does not fund secret projects.

"The moment In-Q-Tel took a technology and blacked it, that is, took a technology and said, 'Now you can't sell it to anyone,' that will probably be the last deal that In-Q-Tel will ever do," says Louie. "Because word will get around the valley: 'Don't show it to them. They're gonna put you out of business.'"

Illustration Louie and Me

WHILE IN-Q-TEL MAY BE going out of its way to avoid adjectives typically applied to the CIA, such as "shadowy," their personnel did prove somewhat elusive when I tried to talk to them. Normally, I'm not one to carp about getting the runaround. But when the people you're trying to talk to work for the CIA, or at least a company owned by the CIA, you tend to becomes a tad paranoid. Therefore, it may be useful to commit an account of my travails to the public record.

I, at long last, did interview Gilman Louie (as the above quotations attest), but only after an earlier last-minute (actually day-before) cancellation and being told by his assistant that she would not even know his schedule for two weeks, much less be able to pencil me into it.

"Not even 10 minutes on the phone?"


"Any time? Day, night?"

"I'll have to call you back." She never did. I dutifully waited two weeks. That was really stupid. I called her back. I received the same response. Basically, "Go away." A little later, however, I got a call from a public relations rep who had In-Q-Tel as a client. He set up my conversation with Louie immediately.

I wanted to drop by In-Q-Tel's Sand Hill Road office. I had two successive appointments arranged and both were canceled. But I did finally make it up there, on a Thursday, in an appropriately rainy rush hour.

In other words, it was a dark and stormy night.

I had never driven down Sand Hill Road before and found that for a place where hundreds of millions of dollars change hands, it all seemed nice and quiet, idyllic even. The office complexes look more like suburban condo complexes than the steel-and-glass monoliths that house downtown financial institutions. In-Q-Tel's office is located behind a single closed door on the first floor of a typical Sand Hill Road complex.

I did not notice the thumbprint reader at the entrance. Therefore, it did not read my thumb. But I was told later that there was one there, a "biometric" identification system of the type that In-Q-Tel might invest in. Another piece of biometrics of interest to In-Q-Tel would be a retinal scanner, Seelbach told me when we sat down in the conference room. I guess the CIA's job-listing home page graphic was no joke. In-Q-Tel is "looking into" just such authentication technologies, Seelbach said.

Jonathan Joseph, a young Tulane University grad who had recently transferred to Silicon Valley from In-Q-Tel's Arlington office, greeted me once I passed through the small outer lobby, following the receptionist's instruction to sign myself in by typing my name on a laptop. The computer printed me a self-adhesive visitor's pass, but that turned out to be a rather silly formality under these circumstances. The entire office was not a whole lot bigger than the interior of a Greyhound bus (though the decor was sure nicer) and there were only two other people there. For them to lose track of me would have been an achievement. Joseph wore a fleece pullover with the In-Q-Tel logo--in which the "Q" looks sort of like a Star Trek emblem--embroidered over the heart.

He and Seelbach, who once worked for the fantastically large defense contractor TRW Inc., showed me around the space, which wasn't all that much to see: a bank of computers against a wall under an imposing In-Q-Tel logo, a couple of private offices, a conference room and the inevitable kitchenette. They were very apologetic for canceling on me twice. Were they being evasive or are they just understaffed, too busy cutting deals and schmoozing hot startups to fit me into their schedule?

The whole experience was disturbingly not creepy. What a letdown. It was also a letdown when I went searching for critics of In-Q-Tel, someone to counter all of the favorable publicity the CIA startup has received--simply in the interests of balance. Perhaps In-Q-Tel is still too young. It normally takes venture capital investments a few years to pan out and success rates are notoriously low. VCs don't hit for high average. They swing for the fences. It may be too soon to know whether In-Q-Tel is Mark McGwire.

I did find one intelligence expert who was skeptical of the venture: Robert D. Steele, a former intelligence officer and author of the book On Intelligence: Spies and Secrecy in an Open World, and who is described by Alvin and Heidi Toffler as "supersmart" and by Bruce Sterling as "100 times as smart and 10,000 times as dangerous as the best of the hackers." He told me in an email that "In-Q-Tel represents the traditional Intelligence Community obsession with technology to the exclusion of thinking people and open sources of information." He went on to say that "a Commission [is] being formed to evaluate In-Q-Tel." He would not give me any specifics about the "Commission" (as a CIA budget item, In-Q-Tel comes under scrutiny from the House and Senate Intelligence Committees) but that he expects it to find that In-Q-Tel "has been a waste of time and money, it is not achieving its objectives and the funds should be redirected toward something else." His sentiments echoed the only real criticism of In-Q-Tel I came across in reading about it: that this "innovative" venture is only an excuse to avoid an overhaul of the CIA's bloated bureaucracy.

"There's always somebody looking at us," says Louie. "It seems like I'm doing weekly presentations to somebody or other. Even though the program is relatively small--$30 or $40 million per year--it's a new model. So there's a lot of people overseeing it."

But when I asked Steele if he felt that In-Q-Tel was a public relations ploy to promote a new image of the CIA, he replied no.

When I asked if it was a genuine attempt to reach out to the free marketplace, he said yes.

I am not as certain. While I'm sure that the CIA does indeed need a mechanism for procuring advanced technology quickly, and that a quasi-private company like In-Q-Tel is a far more "agile" (as the CIA likes to describe it) mechanism than the creaky, red-tape-bound systems mandated by Langley and Washington, I wonder if its MTV-friendly facade might be more appealing than it ought to be. By speaking the language of Silicon Valley, is the CIA preparing to raise a generation of spies?

"People have compared us to the Buick commercials at times," laughs Louie. "I think it is more a question of solving and bridging the generation gap that is fundamental to American industry. As the Gen-Xers and the Gen-Yers move into positions of entrepreneurship as well as the executive offices of these corporations, it's a very different way that these individuals run their businesses. It isn't the Old Boys Network."

The creation of In-Q-Tel, he says, is a way for the government--or its spy apparatus, at least--to bring a generation of high-riding entrepreneurs into the federal fold. But with the flood of business plans crossing Gilman Louie's desk already, the real question is, does the CIA even have to try? Silicon Valley appears more than ready for the spy agency, and you have to wonder, who is assimilating who?

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From the March 29-April 4, 2001 issue of Metro, Silicon Valley's Weekly Newspaper.

Copyright © 2001 Metro Publishing Inc. Metroactive is affiliated with the Boulevards Network.

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