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when the client is the government (some things to keep in mind)

Years after Google pulled out of a Pentagon government contract in the face of employee protests over fears that the company’s technology may be used for fatal drone targeting, Silicon Valley has far less concerns about building software for the U.S. Department of Defense.

In San Francisco today, four investors—Trae Stephens of Founders Fund, Bilal Zuberi of Lux Capital, Raj Shah of Shield Capital, and longstanding In-Q-Tel president Steve Bowsher—said as much during a startup event for military veterans. When asked about the change in mindset he has seen, Shah said, “The amount of firms, founders, and entrepreneurs concerned in national security generally-I’ve never seen it at this level.” Over the course of his 16 years at In-Q-Tel, the CIA’s venture fund, Bowsher said that his team has met with roughly 1,000 companies annually, and that only “five to ten” have turned them down, saying they aren’t interested in working with the customers they represent. He argued that the “reluctance of Silicon Valley to work with the [Defense Department] and intel community” has long been “overblown.”

We wanted to share some of the discussion we had on selling to the U.S. government with startups who are thinking about expanding their client base beyond just commercial customers by targeting the U.S. military as well.

For instance, we discussed mission creep, or how a business that partners with the government doesn’t end up spending all of its time serving the government due to unexpected demands (and ignoring earlier, commercial customers in the process).

This gradual shift in goals is “exactly what makes it hard to do both [cater to civilian enterprises and the government] at an early stage,” according to Trae Stephens, co-founder of Anduril, a maker of autonomous weapons systems that has aggressively courted business from government agencies from the outset. To conduct early business with the Department of Defense via some initiatives, he added, “needs some, like, DoD-ization of your product for that use case.”

While Stephens acknowledges In-Q-early Tel’s support for Anduril, he adds that many government-funded businesses, including those funded by the Small Business Innovation Research (SBIR) programme, “end of building all of these very specific workflow steps that take them away from the commercial businesses needed to make” the business succeed. (In a related issue, Stephens said that very few businesses can pursue the military solely, as Anduril did, since “it takes so long to go into production with the DoD that you have to be able to raise, literally, an unlimited number of seed capital; otherwise, the firm is going to perish.”)

Relatedly, we inquired as to the IP rights management practises of so-called dual-use enterprises after they begin selling to the government. While there may be commercial uses for a technology that allows the NSA identify certain categories of persons making specific types of calls, the government would rather it not be shared to potential enemies. We pondered, “Is there a way to settle it out beforehand?”

Zuberi shared a cautionary story about one of Lux’s portfolio firms. The National Science Foundation awarded Zuberi’s firm $100,000, as he said. The two men at my workplace began it. As a side note, it looks good on their résumé, but I didn’t really value it. One of the [interested] corporations performs homework on what other contracts [the team] could have, and they discovered that the NSF grant had a condition that said, “Hey, if the government wants [what you’re developing], we can utilise it.” Therefore, we lost that privilege for six months while we bargained with [someone at the NSF] who didn’t give a damn. I offered them double the amount of the award to get rid of the problem, but they refused, saying, “No, you can’t do this, we can’t go back.” Thus, difficulties are possible.