Betting on risk

The next generation of homeland security and intelligence technologies could come from a nondescript suite of offices tucked inside an ordinary office building in Maryland's capital city.

The Chesapeake Innovation Center in Annapolis, Md., born from a partnership between the National Security Agency and the Anne Arundel Economic Development Corp., opened in June with a mission to nurture small start-up businesses that plan to develop technology for homeland security. The incubator's first tenant, a company called Lighthouse Communication Services LLC, has moved in and more are on the way.

Maryland is home to 13 technology incubators, most affiliated with universities and economic development agencies, said William Badger, president and chief executive officer of AAEDC. Annapolis chose to draw on its proximity to the super-secret NSA to give its incubator an extra boost.

NSA is an active partner that provides information about the kinds of technology problems the intelligence and security communities need to solve. When the companies have developed technologies or services, NSA officials will consider making a purchase.

Despite NSA's reputation for insular secretiveness, Badger didn't hesitate to initiate talks with the agency. "If you have the NSA in your backyard, you'd be crazy not to knock on their door," he said.

The agency specializes in cryptography — the making and breaking of codes — and is based down the road from Annapolis at Fort George Meade.

In all, the incubator has received about $1.24 million from organizations in the public and private sectors, including the county, and from such partners as Nokia Corp., systems engineering firm ARINC Inc. and the law firm Piper Rudnick LLP.

Like many incubators, the innovation center will build on the area's existing industrial base, said John Elstner, the center's director. The area is home to ARINC, USinternetworking, the U.S. Naval Academy and many smaller entities.

To manage the incubator, AAEDC is contracting with Business Development Cluster, a company that specializes in designing and launching business incubators. Elstner and the rest of the center's management team are employees of BDC.

NSA's involvement started with a list of technology areas agency officials want to address, Elstner said. They include interoperability of communications systems, next-generation communications, communication security, information assurance, physical security and intelligence tools to "connect the dots" between various information sources.

"What NSA gives us is access and knowledge about the security of the country and its technology needs," Elstner said. "This is a really important knowledge set to the companies we're trying to grow."

Exclusive Club

In turn, the incubator is taking applications from start-ups eager for a place to set up shop. If chosen, the company gets office space at reasonable rates, access to a network of seasoned business advisers, shared common facilities such as the conference room, interaction with the government and guidance on the technologies that buyers want to see.

But with room for only 15 companies and calls coming in from around the country, Elstner's first major chore will be selecting the companies to take space.

"We have a fairly rigorous selection process," Elstner said. Companies have to show that they have innovative, patentable technology and a smart management team. It helps if the entrepreneurs have attracted the commitment of more experienced businesspeople to guide the firm, he added.

"We're looking for teams of people rather than one person," he said. "We don't want to be the first person sold" on an entrepreneurial idea.

However, the incubator can nurture some companies it chooses not to host, Badger added. "There's going to be some folks [to whom] we say, 'You're not ready for this yet,'" but incubator officials will put them in touch with advisers for help.

First Steps

The Anne Arundel County facility is not the only government effort focused on fostering the development of technology.

The CIA works with In-Q-Tel, a venture capital firm that funds start-ups that are developing intelligence technologies. Federal research labs often transfer their own raw technologies into small firms for further development. And state and local governments pump money into incubators with the hope of strengthening their own economic bases, even if only a few of the companies nurtured in the incubators succeed.

In setting up the Annapolis facility, Badger worked with the Maryland Technology Development Corp. (TEDCO), which was created by the state legislature in the late 1990s to strengthen Maryland's technology industry.

Badger's incubator idea seemed like a winner to Phil Singerman, executive director at TEDCO. "There are a lot of technology companies in the Annapolis area, so we knew there was a lot of stuff going on. And we had been working with NSA, so we suspected there were opportunities there," he said.

Perhaps because of pressing national security needs, NSA is becoming more open to commercial partnerships, Singerman said.

"NSA has been opening up significantly. We're involved in a number of efforts with them," he said. "We have clearance so that we can be more effective in talking to companies and communicating their needs."

Incubators in general can be successful launching pads for small firms, but the advantage is even greater when approaching an intelligence organization whose mission is to suspect everyone, Singerman said.

"It's difficult even if you're a big company to work with NSA. Any advantage that a company can gain to be introduced to NSA, to have the imprimatur of a publicly sponsored entity, that's going to help the company get oriented," he said.

TEDCO is putting about $15,000 into the Chesapeake Innovation Center from a Commerce Department economic development grant, he said.

The Army's Fort Detrick, in Frederick County, Md., may soon have a similar incubator to work with. County officials completed a feasibility study and are working on an implementation study, said Marie Keegin, executive director of the Frederick County Office of Economic Development.

Fort Detrick, home to the U.S. Army Medical Research Institute of Infectious Diseases, develops technology that often holds potential for further development, she said. "That opens up research and development capabilities [and] biodefense, and the National Cancer Institute is there as well. We think there is a lot of opportunity for technology transfer," she said.

Although the project isn't a done deal yet, Keegin said she is confident it will go forward. "No one's signed any checks yet, but I certainly have heard a lot of support from the state, from the county and from our economic development council," she said. "We have the right partners to make it a done deal."

Seasoning Needed

The incubator model reflects the fact that small firms that have had some grooming have a better chance of getting their foot in the federal door.

Keyhole Corp., a small geospatial software developer in Mountain View, Calif., sold the National Imagery and Mapping Agency on its 3-D mapping software called EarthSystem because it had funding and guidance from CIA-focused In-Q-Tel. Keyhole also makes the EarthViewer software that some TV networks used to create 3-D "flyover" images of Iraq to help their war reporting.

"Generally, the start-up companies don't know anything about how the government runs," said Joan Vallanvewhitacre, program manager for NIMA's geospatial intelligence advancement test bed. "In-Q-Tel serves them very well in helping them overcome any lack. Keyhole has benefited from it."

Any kind of guidance is helpful to small companies, said Daryl Hairston, deputy associate deputy administrator for government contracting and business development at the Small Business Administration. SBA has active mentor/ protege programs and the Service Corps of Retired Executives to offer help.

The most valuable things more experienced business leaders can do for newcomers is to teach them the federal ropes and introduce them to key government players, Hairston said. "In today's federal environment, it's increasingly difficult for small companies."

At the Chesapeake Innovation Center, like most incubators, as many as eight out of 10 companies are likely to fail, Elstner said. "You have to have a realistic expectation of how many are going to make it. We're looking for the one or two we can help get to the moon." n