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Bridging the gap between government and Silicon Valley

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DataTribe pairs up, invests in experts from public, private industry

 

Third Certainty | Rebecca Theim | April 3, 2017

 

If you know where to look, there is a rich vein of venture capital looking to back innovative cybersecurity technologies.

One hot spot is the “Cyber Corridor” around Washington, D.C., where venture capitalists are looking to combine Silicon Valley startup know-how with cybersecurity advances coming out of the country’s military industrial complex.

Bob Ackerman, Allegis Capital founder and DataTribe co-founder

“When you hear the term ‘government innovation,’ it sounds like an oxymoron, except when you’re talking about cybersecurity capabilities and data analytics,” says Bob Ackerman, founder of Allegis Capital. “In those arenas, government is five to seven years ahead of private industry.”

Allegis is a backer of DataTribe, which seeks out government experts with special security know-how and pairs them with mentors from the defense and intelligence communities, as well as from the world of Silicon Valley’s venture capitalists.

Finding a niche

Rather than taking the shotgun approach of traditional start-up incubators, Ackerman said DataTribe looks “down the road and anticipates market needs and identifies where appropriate and relevant technology has been developed. We’ve created a watering hole for the deep technology thinkers.”

Ackerman co-founded DataTribe with former CIA information technology officer Steve Witt, founder and former CEO of Onyara, a data analytics firm that was acquired by Hortonworks in 2015, and Mike Janke, a former Navy SEAL and founder and former CEO of secure communications service Silent Circle.

DataTribe will invest between $1 million and $1.5 million in seed money and another $600,000 in operating support in the startups it backs, and up to an additional $1.5 million in later-stage, Series A funding. The average seed round capital is usually about $225,000, and a Silicon Valley investment is, on average, about $1 million, Ackerman says.

DataTribe’s portfolio includes:

Dragos, which was created by three former U.S. intelligence analysts to develop software to protect critical, privately owned infrastructure, such as the electric grid. Dragos’ CEO was part of the response team to the 2016 attack on Ukraine’s power centers—the first confirmed hack to disable a power grid.

Enveil, which uses homomorphic encryption that allows the processing of data without ever decrypting it. It was the runner-up among the 10 companies that presented at RSA’s 2017 Innovation Sandbox in February. Enveil was launched by a team of doctorate-level mathematicians and computer scientists from the U.S intelligence community.

Kesala, which draws on recent U.S intelligence community advancements to provide VPN-level security through its cloud security and data analytics software.

“There’s some really great stuff in government labs, but there’s no commercial infrastructure around it,” Ackerman says, “If we can find a way to bridge government innovation with Silicon Valley, we have a business.”

Another player active in the Cyber Corrider is MACH37, a Herndon, Virginia-based cybersecurity accelerator.

Trial by fire

Twice annually, MACH37 competitively selects eight start-ups willing to participate in an intense 14-week program in which founders are mentored and coached into creating a sustainable company. They interact with domain experts, successful security entrepreneurs, buyers and cybersecurity investors.

The start-ups also receive a $50,000 investment and access to mentors throughout the life of their companies.

Rick Gordon, MACH37 managing partner

“We help them define what the minimum viable product needs to be, and what the backlog needs to be,” says MACH37 managing partner Rick Gordon. This is done before the focus shifts to the business model, pricing, go-to-market strategy, and developing a compelling proposition for seed investors.

MACH37 has graduated 40 start-ups in its three-year existence.

These start-ups include:

Virgil Security, which develops cryptographic software for developers. It raised $4 million in October, led by KEC Ventures, founded by Jeff Citron, founder of internet telephony company Vonage and other technology companies.

Atomicorp, a cloud-based server security software developer, which has 2,000 customers in sectors including universities, consumer products, medical devices and the U.S. government. It raised $1 million in seed funding late last year, led by Washington, D.C.-based VC Blu Ventures.

Cyber Algorithms, which develops behavioral analytics that dramatically reduce how long it takes to detect cyber attacks. It was acquired in December by enterprise password management provider Thycotic, whose 7,500-client roster includes Chevron, Gap, Deloitte and Adobe.

Both DataTribe and MACH37 are working diligently to overcome geographic and cultural hurdles that tend to separate the rigid world of government contracting from the fast-moving technology industry.

“There’s this incredible disconnect between this intellectual capital base and the people who know how to scale a commercial software business,” Gordon says. “We still have to work very hard to get institutional venture capital to invest. You have to be involved, and it’s not easy to do from Palo Alto.”

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Silcon Valley Business Journal | “VC confidence rebounds as late-stage venture competition eases”

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Silicon Valley Business Journal, By: Cromwell Schubarth | Posted: 4 Feb 2016

Logo_SVBJVenture investors may be taking hope in the dwindling interest in their portfolio that they are seeing among hedge funds, private equity and mutual fund investors.

VC confidence ended a three-quarter slide at the end of last year, according to a quarterly survey done by Mark V. Cannice, a professor at the University of San Francisco.

“VCs tend to see hope when there is a bit of panic and have caution when the punch bowl is full,” Cannice told me, explaining that his survey of investors looks ahead at what they think is coming in the next six to 18 months.

Recent reports on startup investing in the fourth quarter and start of this year indicate that fewer deals are being done while valuations and amounts invested are dropping slightly.

A 5-point index from the survey, where 5 indicates high confidence, came in at 3.59 in the fourth quarter. That’s up from a three-year low of 3.39 in the third quarter but below recent highs above 4 in 2013 and 2014.

Venky Ganesan of Menlo Ventures and chairman-elect of the National Venture Capital Association said the late stage market has been due for a correction, urging, “Caution ahead!”

“The heady cocktail of easy money due to the Fed, high burn rates, and questionable gross margins is going to give a massive hangover to a bunch of companies,” Ganesan said in the report. “We will see a pullback in late stage financings and even some layoffs, but the long-term value proposition of technology driven change remains intact.”

“The public markets cannot possibly absorb the current batch of unicorns at their current valuations, not to mention the thundering herd of unicorn wannabes,” he said. “There will be more disappointment than celebration over the next 18 months. Still, there is plenty of room for creating real value and building great companies. We just need to adjust expectations.”

Dixon Doll, DCM founder emeritus, said, “In this frothy environment with way too many unicorns and public markets receding, I’m long-term optimistic … short term pessimistic because of contracting liquidity alternatives.”

Bob Ackerman of Allegis Capital wrote, “All that glitters is not gold and the hens of excess are coming homing to roost. The massive influx of outside capital into the venture ecosystem, which has inflated a broad spectrum of valuations, has once again validated the ‘Greater Fool Theory.” The venture community is actively pulling in its investment horns which will reinforce the inevitability of the correction. The good news – with the reset come excellent opportunities for those that know the difference between FeS2 and Au.”

“VC confidence rebounds as late-stage venture competition eases.” Silicon Valley Business Journal, 4 Feb 2016. Web. 5 Feb 2016. 

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