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A prime contractor is growing his own startup with promising technology

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The government’s need for new technology and innovation ripples through its supply base. A new trend is that prime contractors are accelerating their investment in promising startups. The $100 million fund founded by Booz Allen Hamilton is a good example. We speak to Booz Allen’s VP of Scouting and Ventures, Brian McCarthy, about its purpose and how it works.He Tom Temin and Federal Drive.

Tom Taemin: And is this venture you founded modeled like a typical venture capital firm you see on the West Coast?

Brian McCarthy: Yes, with a slight twist, it’s a corporate venture. By then it will be a wholly owned subsidiary of Booz Allen. There are no other investors in this fund. Fund capital is disappearing from our balance sheet. One key explanation is that traditional VCs are very focused on getting the best technology into the hands of consumers and other bases. This particular fund will be very public sector focused and will be a strategic fund rather than just financial. In other words, we want to extract strategic value from the companies we find and ultimately invest in.

Tom Taemin: What exactly does strategic value mean?

Brian McCarthy: Yeah, I think that makes some sense. The first is known to be the public sector. This has been widely covered by you and several other media outlets that follow the industry. However, it is widely accepted that public sector, Department of Defense, and national security missions require access to commercial and blue-use technologies to reduce time to market. With that in mind, from a value standpoint, our clients ask us every day about some of the most important missions we deliver. So the strategic value for us is to spend a lot of time finding some of this tech, vetted it, kicking the tires and then publishing them on our channel. deliver them to the client. It also means that we have the potential to address and develop new markets and channels. For example, could we open up new channels with quantum or immersive or counter-UAS? Yes, what we might not develop, necessarily in-house. We have such a function in-house. But can we find companies and start-ups that are poised to grow rapidly and thrive in these areas?

Tom Taemin: You mentioned dual use. So these companies may already have the technology with commercial applications and your job is to make investments that will help them enter the federal market.

Brian McCarthy: That’s right. One of the things we’re looking for is using technical scouting departments, primarily in San Francisco and Austin, with about 25 full-time scouts in Washington, DC. Use it as an intake to find some of these companies. And one of the first things we’re going to see is that some of these companies already have products, right? I’m not necessarily looking for marketing material, but do you have the product and is it ready to use? right? Because that’s what our clients want from us. And if it’s already in use in the commercial market, can we fine-tune it? And can we bring in use cases from the public sector for that particular product? is what you do.

Tom Taemin: I’m talking to Brian McCarthy, Vice President of Tech Scouting and Ventures at Booz Allen Hamilton. And in investing in them, do you also invest in the people side? or just as a subcontractor?

Brian McCarthy: Yeah I think it’s probably a mix of both. As such, we plan to make a minority equity investment in the company. Within that, through a sort of strategic lens, we’re going to help them do a number of things, one of which is to expose them to new markets and channels through the Booz Allen deal. Second, open them completely to a client base that may not have direct access, but there are plenty of other things that are unique to the federal market, right? So they need facility clearance? Do they have trouble getting facility permits?Can Booz Allen help their sponsors?In the cloud he says that anyone building a SaaS application can get federal certification We know how difficult it is to use it on-premises. That’s another thing we can help you with. So our core engineering expertise is definitely going to come. It’s not a very rare instance, but one of the things we’re definitely looking for is if we can adopt this product, this SAAS product. This is mainly what we are talking about here. Can we incorporate it into our own R&D pipelines as well?

Tom Taemin: And what if one of the companies got an investment and they’re on their way and they’re happy with the federal government? What if they subscribe to Deloitte?

Brian McCarthy: no problem.

Tom Taemin: Alright, do you have any early examples of the type of companies you might be pursuing already?

Brian McCarthy: Yeah, so we were stealth last year. We actually already he’s made three investments and according to the last question it’s pretty cool right?So one thing that’s different in the investment game is that it’s actually a team sport . One of the early companies that we actually invested in was a company called Potential AI. They are essentially edge AI companies that develop tools that allow algorithms to be deployed in low-computing and low-power environments. Perfect for soldiers. Another investor in the company was Lockheed Martin Ventures. And we actually traded diligence and discovery as to whether the company would be good for both of us, right? Yeah, I think that’s an early example. And we already have a contract with the military. As for the partnerships there, I think it’s been great so far.

Tom Taemin: Because if they join Booz Allen, they can get closer to winning a federal contract. Since you are investing, you will win and they will make a profit that way.

Brian McCarthy: that is true. Be it Lockheed, L3, Raytheon, some other people have venture arms and we all need to play. this sport. And there is no other way to say it. The Department of Defense has announced that it will provide $100 million of its own funding to bridge what has been dubbed the “Valley of Death” for startups. And we know our adversaries are really targeting some of these markets, especially quantum, especially microelectronics, especially AI and 5G. So we need to provide the startup community with a reliable source of funding and highlight why working with the public sector is good for their business. So it’s really nice to see a lot of startups and founders very willing to work with the public sector.

Tom Taemin: And somehow we are making sure that these types of promising companies are moving away from Chinese capital, for example. This is not an unknown phenomenon.

Brian McCarthy: Well, that’s exactly right. And I think that continues to be a big concern. There was a big article in the Wall Street Journal. SASC [Senate Armed Services Committee] Not only top-level Pentagon officials are very concerned about this. So even in all business cases one thing we have to do is really look at their cap table on foreign investment. is part of

Tom Taemin: Last question, who makes the investment decisions? Is it just you? Or does Booz Allen have a board of directors overseeing these companies?

Brian McCarthy: Yes, we have an investment committee of five.My team that runs fun brings up the business case and works with 4 business units to focus on all things AI, cyber, deep tech and c5isr [Command, Control, Communications, Computers, Cyber, Intelligence, Surveillance and Reconnaissance]These business cases are brought up in front of a five-person board of directors, of which I am a member, and people from the CTO office, corporate development office, etc. come together and put it to five votes.