Sun. Aug 14th, 2022

Booz Allen Hamilton, the Virginia-based defense-focused IT consultancy, today announced the launch of Booz Allen Ventures, a venture capital firm, which will initially invest $100 million in “strategic” defensive and offensive technologies. The move signals Booz Allen’s desire to shape startups in areas she believes are aligned with its core businesses, primarily AI and machine learning, defense and cybersecurity.

Brian MacCarthy, Booz Allen’s VP of ventures, said the new fund will invest primarily in early-stage companies (seed, Series A and Series B) and builds on Booz Allen’s existing Tech Scouting program, which connects with entrepreneurs to to investigate emerging security. technologies. Through Tech Scouting, Booz Allen has recently supported companies including Latent AI, whose technology compresses AI models; Synthetaic, a data generating platform; and Reveal Technology, which performs analytics on aerial data.

In addition to capital, Booz Allen Ventures-backed companies will have access to Booz Allen’s executive and technical teams, as well as customer teams, McCarthy explained. Participants will also receive “strategic” support in the form of potential contracts with Booz Allen customers.

“Our Tech Scouting program gives us a unique insight into where opportunities for hypergrowth exist. But anticipating opportunities isn’t enough — we need to commit capital to move at digital speed,” said Brian MacCarthy, vice president of tech scouting and ventures at Booz Allen. “Booz Allen Ventures enables us to actively bridge the gap between opportunities and possibilities and accelerate the transformation from services to solutions.”

Outside of funds like Shield Capital, which has ties to the Department of Defense, traditional venture firms are often reluctant to invest in defense-focused startups, given both the ethical implications and the long road to profitability. (In the U.S., it typically takes at least 18 months of planning for a government contractor to land their first contract.) Business-backed programs offer an alternative: Booz Allen Ventures joins Lockheed Martin’s Lockheed Martin Ventures and HorizonX, which is due in August 2021.

Defense-focused startups fishing for government contracts need all the help they can get. With the exception of breakouts like Anduril and Palantir, most contracts are awarded to incumbents — more than 95% of Booz Allen’s nearly $8 billion in revenue comes from government contracts — and any startup that gets a foot in the door must bridge the gap between bridging the R&D phase and awarding the contract.

But even founders willing to take an interest in the defense industry are sometimes reluctant to accept corporate weapons financing. They point to harsh terms and commercial arrangements that seek to protect exclusivity or future options to buy their startup’s technology.

Perhaps as a result of those doubts, defense-oriented corporate funds have invested relatively little capital over the years. For example, Lockheed Martin Ventures has only committed about $200 million to startups since 2007. As of 2020, HorizonX, which was founded in 2017, had made just 25 investments – all less than $10 million.

Booz Allen Ventures’ job is to show that it has no intention of phasing out or absorbing startups for the benefit of the parent company.

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