Booz Allen Hamilton, the Virginia-based, defense-focused IT consulting firm, today announced the launch of a corporate venture capital arm, Booz Allen Ventures, that will initially put $100 million toward “strategic” defensive and offensive technologies. The move signals Booz Allen’s desire to shape startups in areas it considers aligned with its core business, mainly AI and machine learning, defense, and cybersecurity.
Brian MacCarthy, Booz Allen’s VP of ventures, said that the new fund will invest primarily in early-stage (seed, Series A, and Series B) companies and build on Booz Allen’s existing Tech Scouting program, which connects with entrepreneurs to vet emerging security technologies. Through Tech Scouting, Booz Allen has recently backed firms 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 gain access to Booz Allen’s executive and engineering teams as well as client teams, McCarthy elaborated. Participants will also be provided “strategic” support in the form of potential contracts with Booz Allen customers.
“Our Tech Scouting program gives us unique insight about where opportunities for hyper-growth exist. But anticipating opportunity isn’t sufficient – we need to deploy capital to move at digital speed,” said Brian MacCarthy, vice president of tech scouting and ventures at Booz Allen. “Booz Allen Ventures allows us to actively bridge the gap between opportunity and capability and accelerate the services-to-solutions transformation.”
Outside of funds like Shield Capital, which has Defense Department connections, traditional venture firms are often reluctant to invest in defense-oriented startups given both the ethical implications and long pathway to profitability. (In the U.S., it typically takes at least 18 months of planning before a government contractor wins its first contract.) Corporated-backed programs provide an alternative — Booz Allen Ventures joins Lockheed Martin’s Lockheed Martin Ventures and HorizonX, which spun off from Boeing in August 2021.
Defense-focused startups angling for government contracts need all the help they can get. Excepting 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 contracting — and any startup that gets a foot in the door has to bridge the gap between the R&D phase and the contract award.
But even founders willing to ingratiate themselves with the defense industry are sometimes reluctant to accepting funding from corporate arms. They point to onerous terms and conditions and commercial arrangements that try to protect exclusivity or future options to buy their startup’s technology outright.
Perhaps as a result of those misgivings, defense-focused corporate funds have invested relatively little capital over the years. For example, Lockheed Martin Ventures has pledged only around $200 million toward startups since 2007. As of 2020, HorizonX, which was founded in 2017, had made just 25 investments — all less than $10 million.
It’ll be incumbent on Booz Allen Ventures to show that it’s not looking to snuff out or absorb startups for the benefit of its corporate parent.
Comment