Forterra Systems Inc., a California startup focused on virtual reality, was in need of money and its products didn’t have much commercial appeal. Then funds came in from a source based far from Silicon Valley: In-Q-Tel Inc., a venture-capital firm in Virginia funded by the Central Intelligence Agency.
One catalyst for the 2007 infusion, according to a former Forterra executive and others familiar with it, was a recommendation by a man who sat on the board of the venture-capital firm—and also on the board of Forterra.
In-Q-Tel pumped in cash, Forterra developed some tools useful to the military, and government contracts started coming in.
Like the agency that founded it, the CIA-funded venture-capital firm operates largely in the shadows. In-Q-Tel officials regard the firm as independent, yet it has extremely close ties to the CIA and runs almost all investment decisions by the spy agency. The firm discloses little about how it picks companies to invest in, never says how much, and sometimes doesn’t reveal the investments at all.
Even less well-known are potential conflicts of interest the arrangement entails, as seen in this Forterra example and others continuing to the present. Nearly half of In-Q-Tel’s trustees have a financial connection of one kind or another with a company In-Q-Tel has funded, a Wall Street Journal examination of its investments found.
In-Q-Tel’s hunt for promising technology has led the firm, on at least 17 occasions, to fund businesses that had a financial link of some sort to an In-Q-Tel trustee. In three instances a trustee sat on the board of a company that had an In-Q-Tel investment, as in the Forterra case, according to the Journal’s examination, which was based on a review of investment records and interviews with venture-capital and In-Q-Tel officials, past and present.
In-Q-Tel differs from other venture-capital firms in an important way: It is a nonprofit. Instead of trying to make money, it seeks to spur the development of technology useful to the CIA mission of intelligence gathering.
Read more at The Wall Street Journal
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