Pentagon Teams With Venture Capitalists to Recruit New Suppliers

By Sandra I. Erwin
The Pentagon spends $400 billion a year on products and services, but still cannot always find the goodies it really needs. Some of the technologies on the Pentagon’s wish list exist in the larger marketplace, but are supplied by companies that shy away from government contracting or may not be aware that the Defense Department is in need of their products.
To bridge the gulfs between demand and supply, the Pentagon created theDefense Venture Catalyst Initiative, known as DeVenci.
“We identify innovative companies that are usually small, with an emerging product that can meet Defense Department needs,” says Glenn Fogg, director of the DeVenci program and head of the Defense Department’s Rapid Reaction Technology Office.
There are two ways to become a DeVenci nominee. One is via the federal procurement, where DeVenci posts announcements under the category of "Special Notice.” Unlike a traditional “Request for Information” or “Request for Proposals,” the special notice invites companies to express interest in participating in an upcoming DeVenci nomination, but does not act as a formal solicitation.
The other avenue is to be nominated by one of the venture capitalists who were handpicked to work on the program.
After the program was launched nearly two years ago, DeVenci recruited a cadre of VCs — 26 so far — who were willing to help the Pentagon, pro bono, spot the hot suppliers. To prevent conflicts of interest, the VCs are required to choose suppliers based strictly on whether they can fill a Pentagon need.
VCs do not just get to pick their favored companies, Fogg says in an interview. “They’ve signed paperwork saying they are not going to profit in any way from what they do or see in the DeVenci office.”
VCs commit in writing to seek out companies with which they normally do not do business. “About 70 percent of the companies nominated by the VCs come from outside their portfolio,” Fogg says. A majority has not done business with the Defense Department before, and many lack the financial means to bid on traditional government contracts.
But becoming a nominee is just the beginning. Before the Pentagon makes any purchasing decisions, the pre-selected products must survive a gauntlet of tests, which lasts from six to 18 months.
Over the past year and a half, 376 companies were nominated. Defense Department subject matter experts reviewed their submissions, and 99 of them were invited to give a 25-minute presentation to an audience of government officials and VCs. Out of the 99 firms, 25 received government funds to have their products tested. Of those, 10 companies reached the “operational capability” holy grail. The winners included a mix of VC-nominated companies and fedbizopps submissions.
“The final selection is made by government subject matter experts,” Fogg says. “VCs are not able to sway the selection process.”
Topping DeVenci’s technology wish list are green energy, wireless communications, cybersecurity and data mining products.
Winners so far include:
• UltraCell Corp., of Livermore, Calif., which developed a fuel cell for mobile devices.
• Avaak, of San Diego, with a wireless multimodal sensor.
• Xceedium Inc., of Herndon, Va., which provides “access control” to secure areas based on identity.
• CommsFirst, of Peachtree City, Ga., with a solar-powered backpack emergency radio system.
On April 25 and 26 in McLean, Va., DeVenci officials will be listening to 33 sales pitches from green energy businesses that made the cut from an initial pool of 160. These companies will seek to fill 50 different energy-related requirements from the Department of the Navy, Fogg says. “It’s all about energy efficiency.”
According to one of the candidate entrepreneurs who is currently going through the process, DeVenci appears to be one of the best organized efforts he has seen from the government to engage new suppliers. “At first we thought it would be a good place to cozy up to VC money guys,” he says. “But it's really about presenting to a military market.”

Topics: Business Trends, Doing Business with the Government, Defense Contracting

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