0. Cyber Accelerator Decision Brief
October 2010

1. Gap in Cycle Time, Innovation, Access
$32B: Commercial Software/Internet R&D
Cycle Time Gap: Commercial IT enterprises out-invest all DIB enterprises, and it shows in cycle time Commercial IT cycle < 20 months DIB IT cycle > 50 months
2008 IR&D as percent of Revenue
$22B: All Aerospace and Defense R&D
IT Product Cycle (months)
$5.6B: Later-Stage
2Q08-1Q10 Private Investment in Internet = $7.3B
Innovation Gap: Private investment in new technologies, business models, and markets > 10x CNCI R&D component
$1.7B: 515 New Startups
FY10-FY11 USG Cyber R&D = $721M
Total Venture Funded Jobs = 7380
Access gap: USG venture investment touches < 1% of cyber startups; More “reach” into cyber startups is essential
Aug 2010 Cyber Startup Employment Opportunities
In-Q-Tel Funded Jobs = 59 (0.8%)
Sources: Booz and Company, House Armed Services Committee, PricewaterhouseCoopers, National Science and Technology Council, StartUpHire Search
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2. Fill Gap in Private and Public Business Models
Moore’s Law: Every 24 months, 4x improvement (2x performance at ½ price)
24 mo 4x
48 mo 16x
72 mo 64x
96 mo 256x
120 mo 1024x
Traditional DIB IT Model
Obtain funding: 24 months
Funding to ops: 81 months (DIB avg) Total: 105 months
Need/POM/ Budget
Acquire
Develop
Transition to Ops
Idea
Source: William Lynn/DepSecDef
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3. Fill Gap in Private and Public Business Models
Moore’s Law: Every 24 months, 4x improvement (2x performance at ½ price)
24 mo 4x
48 mo 16x
72 mo 64x
96 mo 256x
120 mo 1024x
Traditional DIB IT Model
Obtain funding: 24 months
Funding to ops: 81 months (DIB avg) Total: 105 months
Need/POM/ Budget
Acquire
Develop
Transition to Ops
Invest, Innovate
Integrate, Transition to Ops
In-Q-Tel: accesses commercial innovation, doesn’t provide integrated commercial capabilities and transition incentives
Government-focused Alternative Models
Attempts to address the gap
Idea
Innovate, Transition
NSA “90-day spin”: provides continuous innovation and transition, doesn’t access commercial technology well, and not incentivized to adopt or integrate it
Source: William Lynn/DepSecDef
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4. Fill Gap in Private and Public Business Models
Moore’s Law: Every 24 months, 4x improvement (2x performance at ½ price)
24 mo 4x
48 mo 16x
72 mo 64x
96 mo 256x
120 mo 1024x
Traditional DIB IT Model
Obtain funding: 24 months
Funding to ops: 81 months (DIB avg) Total: 105 months
Need/POM/ Budget
Acquire
Develop
Transition to Ops
Invest, Innovate
Integrate, Transition to Ops
In-Q-Tel: accesses commercial innovation, doesn’t provide integrated commercial capabilities and transition incentives
Government-focused Alternative Models
Attempts to address the gap
Idea
Innovate, Transition
NSA “90-day spin”: provides continuous innovation and transition, doesn’t access commercial technology well, and not incentivized to adopt or integrate it
Invest, Innovate, Market
Commercial Model: bring innovation to scalable market in one Moore’s Law cycle; Example: iPhone in 24 months
Requirement for New Cyber Model
Align with commercial model Idea to transition in 24 months
Innovate, Integrate, Transition
Cyber Accelerator: sponsor commercial innovation, fund scalable integration projects, balance private and public incentives for more effective transitions
Source: William Lynn/DepSecDef
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5. Accelerator: Investor, Incubator, Integrator
Vision: Reconnect the entrepreneurial community to national missions and requirements – starting with cybersecurity – and strengthening U.S. capabilities in both the public and private sectors.
Mission: Accelerate the delivery of unique commercial offerings into both DoD/DHS and commercial cybersecurity markets, delivering speed and innovation through a commercial business model, and creating a more diversified cyber industrial base.
Value Propositions
Differentiated Operating Model
Identify and advocate for commercial technologies that create sustainable U.S. advantages – both DoD/DHS and commercial.
Provide high-leverage, low-dilution funding for these dual-use commercial innovations.
Incubate new functionality and/or integrate commercial companies in new channel partnerships within twelve months.
USG gains privileged mission-level access to these commercial capabilities, without compromising private intellectual property.
Enable the commercial partners and the USG to develop relationships in an open market, without the exclusive deals or competing equities of traditional DIB integrators.
Facing government sponsors, deliver new mission capabilities as an integrator, but one without internal equities or incentives.
Facing entrepreneurs, operate as an incubator, accelerating their product roadmaps and opening new markets.
Facing private investors, operate as a non-dilutive co-investor, increasing the return on their investment.
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6. Controlled Unclassified Information
No current entity balances the investor, incubator, and integrator roles
Current DoD/DHS providers (USG agencies, USG-sponsored institutes, DIB contractors) operate around internal equities
This initiative requires a fresh charter and governance model
Entrepreneurs and investors do not trust USG/DIB as partner
Too conflicted/opaque, too political/inconsistent, too limiting
Cyber accelerator value propositions offer attractive proof points
Entrepreneurs signed up for test case
Early and late-stage investors see upside
Infrastructure providers see novel opportunity
Incentives guide behavior and results, and must be used to align the USG sponsors with the cyber accelerator participants
Take lessons from, but don’t just create one more legacy entity
Sources: Discussions with cited companies
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7. Analysis of Alternatives
Private sector based models offer the best opportunity to engage private sector innovation
Value propositions
Effective alternatives
Comprehensive list of alternatives
New private sector for-profit, non-profit, or VC fund
Legacy considerations
Ineffective alternatives
New structure considerations
Regulations/authorities
Continued accountability
Risk of adverse lobbying
Effective incentives
NSA/CYBERCOM, DARPA, GOCO, FFRDC, UARC
Models that look and feel like USG and/or business as usual will fail;
VC statement: “We haven’t funded a company focused on the public sector”
Sources: RAND Corporation (list of alternatives), Discussions with cited companies
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8. Continuity + Commitment + Relationships
How to connect USG with innovators
Critical sponsor decisions
Continuity
Five+ year
period of performance, pre-negotiated termination liability, no option years
VC Fund Duration = 10 years
Startup to IPO = 8 years
Pilot = 1 year
Ensure that the cyber accelerator can support a commercial partner beyond the pilot program
Commitment
OTA/Technology Investment Agreement (10 USC 2371) is tailor-made for cyber accelerator
Reliable, apolitical accelerator, capable of protecting its partners’ intellectual property
Traditional contracting is suboptimum for USG (no APIs or IP escrow) – USG needs better access to innovation
Relationships
“You get one chance per decade”; “Current players are opaque and conflicted”; Traditional competition = legacy organizations = failure
Sole-source, to a new, focused private entity – this is the gut check between for-profit and non-profit
Understand that for entrepreneurs, opportunities follow people, not contractors or agencies
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9. Creating the Accelerator Ecosystem
OSD
Entrepreneurs
Sponsor
T10 User Rep
VC, legal, and banking interfaces to source projects
Create witting for-profit to isolate projects that must be disassociated from USG
Create channel partner/DIB interfaces
Attract private co-investor(s)
Panel Chair
Transition T10/T6 projects
Leverage USG outreach (DARPA, Enduring Security Framework, DeVenCI) to source areas of interest
Transition T50 projects
Cyber Accelerator
Integration Panel
Legal/ Banking
Observer
T10 Acq Rep
CEO
Participants
Outside VC
Outside Entrepreneur
USG Observer
Sponsor
OSD/CIO
USD(I)
USD(P)
STRAT/J5
DISA/IA
DHS/NCSD
Observer
Board Observers
VC/PE
T6 User Rep
Outreach
DIB
T6 Acq Rep
Ensure accelerator, sponsor, and integration panel are not conflicted
Balance mission and IT membership on USG integration panel
Balance entrepreneur community membership on accelerator board
Build-out additional elements of the ecosystem
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10. Metrics and Incentives
USG
Accelerator
Incentive
Commercial Performance: are capabilities developed and integrated in a commercial business model? X
Performance bonus
Acceleration: meaningful results demonstrated in less than 12 mo?
Partner incentives
Transition: are users receiving capabilities in less than 24 mo?
Dual-use: is capability scalable in commercial markets?
Long-term equity
Return on USG investment (requires credible ICE models)
Assessed near end of 5-yr PoP
Industrial base: is the DIB becoming more diversified?
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11. Controlled Unclassified Information
Key Take-Aways
Not a “band-aid” to an existing IT acquisition model or organization
Sponsor with OTA/TIA authorities
Dual-use model requires cyber accelerator to act commercially, unlike existing DIB or USG organizations
Incentives matter
Cannot report to a conflicted organization or agency
Requires shared incentives between USG and cyber accelerator
Must attract and excite entrepreneurs, both in cyber accelerator and its commercial partners
Vision: Reconnect the entrepreneurial community to national missions and requirements – starting with cybersecurity – and strengthening U.S. capabilities in both the public and private sectors.
Mission: Accelerate the delivery of unique commercial offerings into both DoD/DHS and commercial cybersecurity markets, delivering speed and innovation through a commercial business model, and creating a more diversified cyber industrial base.
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12. Controlled Unclassified Information
Timeline and Actions
1QFY11
2QFY11
3QFY11
4QFY11
Decision tree (key study deliverable)
Legal/authorities review complete
Cyber accelerator entity established
TIA authorities granted to sponsor
Processes in-place
Accelerator core staffing complete
Accelerator FY10 contract end
Accelerator tasks
FY11 Technology Investment Agreement start
Integration Panel staffing complete
Sponsor tasks
Portfolio/CID Decision Reviews
CID-1 Incremental Demonstrations
CID-1 complete
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