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Innovation Center Nurtures Newborn Security Companies

By Ellen McCarthy
Thursday, August 19, 2004; Page E01

Sitting in a glass-walled conference room first thing Monday morning, executives from a dozen start-up companies were given the local tech equivalent of a buried treasure map: a detailed presentation by the Department of Homeland Security on how to win grants and sell it products. Later the fortunate entrepreneurs took turns making individual pitches to the agency's representatives.

It's the kind of opportunity some local techies spend months chasing down, but it's almost commonplace for executives of companies housed in the Chesapeake Innovation Center (CIC), an Annapolis incubator focused solely on developing homeland security technologies.

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Not yet a year old, the incubator already has gained the attention of federal agency officials and venture capitalists by sifting through the crowded field of security start-ups, plucking out some of the most promising and helping those companies get their products on the market.

"We are laser-focused on national security. Everyone we deal with has some interest in homeland security. Everyone is passionate about the war on terrorism," said John H. Elstner, CIC's chief executive.

The incubator was born out of Anne Arundel County's efforts to bolster its technology industry. Efforts to create an incubator were underway when terrorists struck on Sept. 11, 2001, propelling security into the tech sector's spotlight and prompting CIC's directors to narrow the incubator's mission.

Anne Arundel County Economic Development Corp. so far has pumped about $1.5 million into the incubator. Under the direction of Elstner and Business Cluster Development, a Menlo Park, Calif., company that advises incubators, CIC recruited a group of corporate sponsors, including Nokia, BearingPoint Inc. and law firm Piper Rudnick, to help pay the center's bills. CIC won't release specific figures, but its directors say the incubator's annual budget is "in the high six figures."

The plan is to rely much less on taxpayer funding over time, Elstner says. But to survive, CIC will have to produce successful companies. The incubator takes an equity stake in each of its start-ups, so if they are acquired or go public in the future, CIC will get a cut of the profit. Companies also pay a "membership fee" ranging from $600 to $3,500 for space in the center.

Before CIC opened last October, its directors evaluated 150 companies that wanted to be housed in the center. They chose seven to be part of its inaugural class, providing them a home for about two years. The main criterion for acceptance is simple: have technology -- or a feasible idea for technology -- that will make the country safer.

Of course, every third company in the Washington area these days seems to have a product it claims will protect the nation from terrorists. In order to cull the best of the best, CIC starts by asking target customers, like government agencies and large corporations, about their most pressing gaps in security technology. Companies with the potential to fill those needs are given a priority at the center.

When BearingPoint encountered a small Israeli company with cybersecurity technology it was interested in reselling to its own customers, the McLean firm recommended that CIC take a look at the start-up. Elstner and others met with the Israeli firm, Moozatech Inc., evaluated its business and offered the company a spot in the incubator.

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