Four Months Later, In-Q-Tel Again Needs New CEO

By Terence O'Hara
Monday, April 24, 2006

Amit Yoran resigned over the weekend as chief executive of In-Q-Tel , the venture capital arm of the U.S. spy community, after less than four months on the job.

Yoran, a seasoned technology entrepreneur and investor as well as a former head of cybersecurity for the Department of Homeland Security, had led In-Q-Tel since January. He said yesterday that his reasons for leaving were entirely personal, including a desire to spend less time on the road and more with his family. He and his wife have three young children. In-Q-Tel has investments all over the country, and Yoran has traveled extensively. Considered a success inside the Central Intelligence Agency, which created it, In-Q-Tel's mandate has been expanding to find more technology for more spy agencies.

"It's a very amicable parting," said Yoran, 35. "I will say I'm sorry and disappointed as well. But these are personal issues. . . . My continued performance as CEO was not going to be possible."

Yoran said he will continue to work with In-Q-Tel as a part-time consultant. Before taking the chief executive job four months ago, Yoran had invested money in several private technology companies. He continues to serve on several company boards.

Lee A. Ault III , chairman of In-Q-Tel's board of trustees, said he accepted Yoran's resignation "with regret."

"In-Q-Tel has benefited from Amit's vision and leadership during his tenure as CEO," Ault said in a statement. "We appreciate his service to In-Q-Tel, and we look forward to continuing In-Q-Tel's unique and important mission of delivering important and cutting edge technologies to the CIA and the intelligence community."

In-Q-Tel calls itself a venture capital firm, but venture investing is a small part of what it does. The CIA created the organization as a nonprofit, and its job was to identify technologies being funded and developed by the private sector that could have value in intelligence-gathering or national security applications. In-Q-Tel makes small investments in start-up companies, almost always as a junior partner to traditional venture capital funds. Most of In-Q-Tel's money goes toward evaluating and funding the technology to make sure the CIA or other intelligence agencies can use it.

Yoran had begun to ramp up In-Q-Tel's investment activity to meet its growing budget and responsibilities. He said the organization has an annual budget of more than $50 million -- up from $30 million to $35 million several years ago -- and includes as "investors" several other intelligence and homeland security agencies in addition to the CIA. In its early years, In-Q-Tel was funded almost entirely by the CIA. All of In-Q-Tel's contacts with the intelligence community, no matter the agency, still run through a special office inside the CIA.

Last month, Yoran hired his old friend, Mark Frantz , a well-known local venture capitalist who spent the past five years with the Carlyle Venture Partners , as In-Q-Tel's managing general partner. Frantz in an interview last week said the organization would be hiring more people for its investing team.

"We're not exactly taking out help-wanted ads, but we want to add to our venture team," Frantz said. "We've got some very talented folks here, but we're here to turn it up a notch. "

Yoran took over from founding chief executive Gilman Louie , who ran In-Q-Tel since its 1999 inception. The board is expected to appoint an interim chief executive this week and begin a national search for Yoran's replacement.

Yoran said 120 technologies partly funded by In-Q-Tel have been deployed by the CIA or other agencies. "Unfortunately, we can't talk about the specific uses," he said.

Investing in Start-Up Banks

For two decades, Danielson Associates of Rockville has been among the leading dealmakers for start-up banks on the East Coast. Now, it's investing in them.

Founder Arnold Danielson , known for his deep relationships with the region's community bankers, advised dozens of young banks as they grew and ultimately were acquired. His credibility stemmed in part from the reams of cogent research he wrote on community banks. In the past 10 years, Danielson Associates represented sellers in 34 bank acquisition deals worth nearly $3 billion. One of Arnold Danielson's crowning achievements was the sale of Columbia Bancorp to Fulton Financial Corp . Columbia was a longtime Danielson client, and Danielson advised the bank in its $306 million sale to Fulton in February.

Arnold Danielson is semi-retired, spending a lot of time writing a history of banking at his residence in the south of France. The firm is run by his son, David , who is president, and by principle Jonathan D. Holtaway .

Last year, Danielson Associates started Ategra Capital Management , which is run by Holtaway. The new company runs an investment fund that has bought stakes in 32 small banks, totaling about $9.4 million, said Holtaway, who was an analyst at Danielson for 10 years until 2001 and rejoined the firm last year in part to help start the fund.

The fund was created to profit from Danielson's expertise in small banks, which typically have small, intensely local shareholder groups that don't seek out institutional investors.

Not that there's a lot of institutional investment money chasing those banks. The professionally managed investment funds that specialize in community bank stocks generally invest in bigger banks, typically with assets of $500 million or more. Holtaway is investing much earlier.

"We have been a seen a good three-year wave of bank start-ups, and it's expected to continue," Holtaway said. "We only exist at the very low end, where these stocks sometimes don't even trade. You really have to work it to buy some of these stocks."

A typical investment will be $300,000 to $500,000, Holtaway said. The fund is focused on East Coast banks, the region where bankers know Danielson well.

"People in this business identify with the Danielson brand," Holtaway said. Start-up banking "is a highly specialized thing, and if you're going to join these early investors, you really have to understand it and enjoy it."

Terence O'Hara can be e-mailed

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