Ex-Defense officials form investment fund for small tech firms

A team of veterans of the defense community is forming a venture-capital fund designed to address the gap between small commercial technology firms and the government's needs for military and homeland security goals.

"You have a discontinuity between how the government and commercial world operate," said David Oliver, a former Defense Department acquisitions officer who now heads his own consulting firm in Alexandria, Va. "We are trying to bring to government's attention things that are technological advantages" and make a profit at the same time.

Oliver said in an interview that the private sector has many great technologies, but it is "really hard" to place technologies properly within government. The trick is to match the technology with the person in government who needs it and who is willing to accept it, he said.

Small companies have a hard time figuring out which government door to knock on when they think they have a useful technology, he said. And the process is further complicated by entrenched purchasing habits that lead officials to buy more readily from well-known suppliers.

Oliver said he contacted officials at small companies and learned that those with less than $20 million in sales are "operating on a shoestring." It is a lot to ask such companies to reserve money to get effective assistance in Washington, he said. Oliver predicted that a company might need $500,000 to $1 million to get a product to market.

That is where Oliver and Barry Blechman, president and CEO of DFI International, enter the procurement picture. Blechman, a 40-year defense industry veteran, initiated the fund idea after seeing the success of In-Q-Tel, the CIA-funded venture-capital outfit. Blechman said another fund of his called Swann Street Ventures also would be involved in the privately funded project.

"American military superiority these days does not depend on technologies unique to the military," Blechman said.

Oliver said the partners would form a "critical mass" of perhaps 100 small companies, possibly anchoring the fund with one larger firm as a partner. He said they are looking for $50 million for the fund at the outset. They are considering use of an available tech facility in Newport News, Va.

The fund would provide protection for the small companies against "real or imagined problems," he said. Often, small firms sell their technologies to one of a limited number of well-known traditional defense contractors. But small companies often fear that they will lose the rights to their technologies under such arrangements, Oliver said.

Retired Vice Adm. Arthur Cebrowski, director of force transformation at Defense, said last week that the military plans to look further upstream in the technology development chain to the smaller firms in order to influence their product development earlier.

Oliver also said there are ways to waive many government requirements for procuring technologies that he exercised regularly when in office. The key is getting the request to a high enough level in the Pentagon, he said.