These venture capitalists see an opportunity to make government contracts great again — and are gambling that agencies’ eagerness to move business to the cloud and invest in artificial intelligence will result in big opportunities for the start-ups that want to take on the challenge.
Founders Fund partner Trae Stephens knows working with the government is a risky move for young, cash-strapped companies -- and that many investors who have tried working with its long sales cycles haven't seen returns on their bets. “There aren’t many success stories in this space,” Stephens tells me.
But the government recognizes it has a technology problem -- "it is increasingly understood that we are falling behind," he says -- and Stephens thinks it's too big an opportunity to pass up.
Stephens is not shying away from controversy -- and is investing in technology that relates to possibly the most hot-button political debate today: how to secure the U.S. border with Mexico.
Stephens is a co-founder and investor in Anduril Industries, a company that is building a system that uses artificial intelligence and digital cameras to track people's movements near the border. Anduril wants to be an electronic alternative to a physical wall — an idea that could gain more traction in Washington as Trump and Democrats in Congress remain locked in a stalemate over funding for a border wall. Trump has tweeted that he knows technology “better than anyone,” and technological solutions will only secure the border in conjunction with a physical wall.
Stephens’s firm has a history of investing in businesses that have experience working with the federal bureaucracy. Its portfolio includes companies such as Elon Musk’s SpaceX and the spy-software company Palantir. He hopes that plays to his advantage since it's not a playbook that many other venture capital firms have been able to replicate.
The government is making a broad push into emerging technologies, as policymakers from Capitol Hill to the White House are increasingly alarmed at the rising threat China poses to U.S. dominance in technology.
The Pentagon in particular is making artificial intelligence a huge priority — and defense contractors in the Washington area may not be best suited to meet these needs, according to Katherine Boyle, a principal at venture capital firm General Catalyst and former Washington Post reporter.
In fact, the government’s needs are changing so much that Boyle believes the next big defense contractor could emerge from Silicon Valley -- the hub for the country's best engineers in this space.
“We’re moving away from hardware and battleships,” she said of government contracts. “We’re moving toward a software-based defense system.”
The Pentagon said last year it would invest up to $2 billion over the next five years toward new programs advancing artificial intelligence. Much of that funding will go to dozens of new Defense Advanced Research Projects Agency products. The Pentagon also has bolstered programs that make it easier for early-stage start-ups to do business with the government, such as the Defense Innovation Unit.
Christopher Kirchhoff, a founding partner of the initiative, said at a Council on Foreign Relations event on Tuesday that for many years, the Pentagon held a “monopoly” on advanced technology. Now, he said, "the locus of innovation has shifted from East to West. If the Pentagon doesn't focus on what technologies are being developed in Silicon Valley, then it is no longer on the cutting edge.”
Stephens said programs like the Defense Innovation Unit have been a good first step and show that the government realizes it needs to work with the technology industry. But he said the Pentagon needs to be more focused and make larger investments in a handful of companies, rather than cutting small checks to dozens.
That’s the only way to build the next-generation Lockheed Martin, he said.
“We need to get out of the habit of these piddling spray and pray investments,” Stephens said.
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BITS: William P. Barr, President Trump's nominee for attorney general, signaled during his confirmation hearing before the Senate Judiciary Committee that he could examine how some Silicon Valley companies grew so much that they became “behemoths.” Barr's comments came in response to a question from Sen. Mike Lee (R-Utah) about his position on antitrust laws.
“I’m sort of interested in stepping back and reassessing or learning more about how the Antitrust Division has been functioning and what their priorities are,” Barr said. “I don’t think big is necessarily bad, but I think a lot of people wonder how such huge behemoths that now exist in Silicon Valley have taken shape under the nose of the antitrust enforcers. You can win that place in the marketplace without violating the antitrust laws, but I want to find out more about that dynamic.”
Barr also told Sen. Josh Hawley (R-Mo.) that he is interested in privacy issues as well as the market power of tech giants, the Hill's Harper Neidig reported. “I would like to wade into some of these issues,” Barr said, according to the Hill. “I also am interested in the issue of privacy and the question of who owns this data. It’s not an area I’ve studied closely or become an expert in, but I think it’s important for the department to get more involved in these questions.”
NIBBLES: City officials in Portland, Ore., set up a four-month pilot program in July last year to prevent electric scooters from swarming the city without supervision, the New York Times's Kate Conger reported. Bird, Lime and Skip were granted permits to operate in the city. Under the program, which imposed limits on scooters, companies were required to share data with the city about trips and injuries.
“A lot of these companies roll into town, flout local regulations, see what they can get away with and how far they can push cities to accommodate them,” said Chloe Eudaly, a Portland city commissioner, according to the Times. “I feel like there is somewhat of a reversal of that trend among these companies and they are learning that’s not necessarily the best way to do business.”
The data that the city collected showed that electric scooters “often replaced short car trips in Portland” and “did not lead to as many injuries as some had feared,” Conger reported.
BYTES: As T-Mobile waited for a decision from the Trump administration on a $26 billion merger with rival Spring last year, nine of its top executives booked rooms at the Trump International Hotel, The Washington Post's Jonathan O'Connell and David A. Farenthold reported. The executives included celebrity chief executive Jonathan Legere.
It was not their only stay at the hotel. By mid-June, seven weeks after the merger was announced, one executive made his 10th visit to the hotel, and Legere made at least four visits.
“Trump the president works at 1600 Pennsylvania Avenue. Trump the businessman owns a hotel at 1100 Pennsylvania,” my colleagues reported. “Countries, interest groups and companies like T-Mobile — whose future will be shaped by the administration’s choices — are free to stop at both and pay the president’s company while also meeting with officials in his government. Such visits raise questions about whether patronizing Trump’s private business is viewed as a way to influence public policy, critics said.”
— Roku said on Twitter on Tuesday that it would delete the Infowars channel from its platform following public outcry, The Washington Post's Timothy Bella reported. Some customers who discovered the channel were outraged and said on social media they would boycott or leave the service. Infowars was founded by far right wing conspiracy theorist Alex Jones, and many other technology companies, including Facebook, Twitter and Apple, banned its content from their services months ago.
“Roku even heard from lawyers representing the families of Sandy Hook victims, who say they continue to be threatened and harassed thanks to the InfoWars-spread conspiracy theory that the 2012 massacre that killed 27 people, including 20 children, didn’t happen,” Bella reported. One lawyer for the families told the media that by allowing Infowars, Roku was “indifferent to the suffering caused by Mr. Jones’s continued onslaught of cruelty and reckless lies.”
— Facebook, which has faced criticism for struggling to prevent the spread of disinformation on its platform, announced a $300 million investment to support journalism projects, The Washington Post's Hamza Shaban reported. The investment will aim to help local news outlets improve their newsgathering efforts and their business models.
“Among the funded initiatives are: a $20 million investment in a program to help local outlets design and execute subscription and membership models; a $5 million endowment to create a grant program with the Pulitzer Center for local multimedia reporting projects; and a $2 million investment in Report for America, an initiative to recruit and fund journalists to cover under-covered topics in local newsrooms across the country,” Hamza wrote.
— A coalition of 90 advocacy groups including the American Civil Liberties Union and the Electronic Frontier Foundation sent letters to Microsoft, Amazon and Google to demand that the tech giants promise to not sell facial recognition technology to the government, the Verge's Makena Kelly reported. “We are at a crossroads with face surveillance, and the choices made by these companies now will determine whether the next generation will have to fear being tracked by the government for attending a protest, going to their place of worship, or simply living their lives,” said Nicole Ozer, technology and civil liberties director for the ACLU of California, according to the Verge. (Amazon founder and chief executive Jeffrey P. Bezos owns The Washington Post.)
— More technology news from the private sector:
— The House unanimously passed a bill by Reps. Will Hurd (R-Tex.) and Robin L. Kelly (D-Ill.) that would elevate the position of federal chief information officer as a presidential appointee reporting directly to the director of the Office of Management and Budget, according to a news release from Hurd's office. The bill would also direct the federal CIO to send a proposal to Congress to streamline IT in the federal government.
The legislation passed the House last year in the previous Congress but did not advance in the Senate. “I’m glad that the House has moved quickly to again pass this important bill,” Kelly said in a statement. “Using business and states as a model, we’ve seen how a strong CIO office can help streaming IT processes and accelerate modernization.”
— More technology news from the public sector:
— Elon Musk's SpaceX is cutting jobs while his Boring Company is hiring, underscoring how the fates of two of Musk's companies are differing, according to Bloomberg News's Sarah McBride. “While SpaceX has said it expects a slowdown in launches this year, Boring Co. is making progress around the U.S.,” McBride wrote. “The company opened a test tunnel near Los Angeles last month, is in exclusive negotiations with the city of Chicago for a subway-like system there and is undergoing an environmental-review process for a tunnel in the Washington, D.C., area.”
— The troubles at Snapchat’s parent company are continuing. Snap Chief Financial Officer Tim Stone, who came to the company from Amazon, is resigning after eight months in the position, Bloomberg News’s Sarah Frier reported. “Since the company’s March 2017 initial public offering, most of Snap’s top executives have either chosen to leave or been pushed out, including the heads of legal, strategy, product, engineering and sales,” Frier wrote. “Chief Executive Officer Evan Spiegel’s handling of the departures has in some cases caused friction.”
— More news about tech worforce and culture:
— Tech news generating buzz around the Web:
— Rep. Cathy McMorris Rodgers (R-Wash.) will serve as ranking Republican on the House Energy and Commerce subcommittee on consumer protection and commerce, according to a news release from McMorris Rodgers's office.
— News about tech incidents and blunders:
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