Inside In-Q-Tel: Investing in America’s Cyber Future with Katie Gray

Transcript

We are dramatically underinvested as a nation in our cyber defense. We have some great government agencies that are really focused on kind of information sharing, threat sharing, public private partnership, etc. But I don't know that we have, you know, the capabilities to respond as quickly as we need to. >> Welcome to Cyber Focus from the McCra Institute, where we explore the people and ideas shaping and defending our digital world. I'm your host Frank Salufo and this week I have the privilege to sit down with Katie Gray.

Katie is a senior partner at INQoutell where she is involved in all the investments that uh InQell is making in support of the government and really excited to sit down. There's a lot of mystery and mystique around InQel. Let me just say they deliver and they deliver well. So Katie, it's a privilege to sit down with you today. >> I'm thrilled to be here.

Thank you. So I thought we'd start with so there is a lot of mystery around inqout but uh in terms of what the core mission is where you are today from where you started you haven't been there for 26 years but you have been there 14 15 years so uh quite some time why don't you help our viewers and listeners understand uh inutel's mission core competencies and and where you're going >> yeah absolutely so um as you said inel was created about 25 26 years ago 1999 9 um and was set up as an independent notfor-profit investor to help bring uh new technology, innovative technology out of the startup sector into uh US government. >> So you know we have been sort of delivering on that mission I would say for the past 25 years. really what our core uh our our core value is is we are um uh a great bridge between the government, the private sector and the VC community really looking at the most innovative technology that is happening kind of you know initially it was set up really because Silicon Valley and DC were not really well connected over the years and actually made investments in 35 states and 20 countries so it's much more than just Silicon Valley >> um but the really the the fundamental idea was there's all this innovation that was happening in the startup ecosystem that was very hard for the government to get access to. Um and there were these really hard problems uh you know in the government where new capabilities kind of coming out of that sector would be would be helpful and so incubate FOMO as well right >> maybe some FOMO but I think really more it was about really tapping into the ingenuity and tapping into the innovation in our country and really being able to sort of leverage what the commercial sector was getting and you know you think about the commercial sector and sort of the the speed of development the speed of you know iterating and building new technology.

I think that was just sort of an ethos that was uh was desired by the government to also be able to to work on that kind of time scale >> and to get some of the cutting edge technologies into the hands of our first responders, first preventers, those on the front lines, our war fighter, uh our intelligence officers. um which which is a so your the definition of success isn't necessarily or isn't exclusively a highly successful outcome financially right >> yeah so um again you know kind of emphasizing we are not for profofit um so we are you know in sort of Silicon Valley prelence that would be a strategic investor as opposed to a financial investor and >> what we're really looking at is the technology fit are we bringing some new kind of gamechanging technology to the government partners. At the same time, we're looking for companies that will be successful. And that's not because we're necessarily looking for that financial success, but because those will be ongoing concerns. Um, every dollar that Inkel invests in a company.

There's $40 that are invested from the private sector. So, you know, we invest co-invest with about two 2,000 or so different um, you know, venture investors, private equity, etc. And oftentimes Inkutel's involvement is sort of a stamp of approval on the technology on kind of some of the um you know maybe some of the the markets and use cases that might be available to the company >> and when you think of defense tech you can't have that conversation without discussing Palunteer and both were original inel investments right >> yeah many others yeah Palanteer was one of one of the earlier investors exactly exactly and and how does the requirement setting process and as much as we can discuss here. How does that look? >> You know, when we think about what what companies and what technologies we want to invest in, um there is a process sort of every year where we're sitting down with all of the agencies that we work with. Um and just as an aside, I will maybe because you me you asked about about sort of the change of inutel over time.

So really primarily we were focused on the intelligence community when inel was stood up and increasingly we're working kind of across the government. So more um more across the the department of war and the um civilian you know DHS um other agencies etc. So um but in any case we sit down every year with a problem set you know sort of a formal kind of requirements types of meetings. >> Most of INQEL is cleared so we have a lot of folks in our Tyson's office that spend a lot of time in the building with different um constituents and really kind of enduser groups to understand what their environments are, >> what their requirements are. So we're typically trying to invest in areas where we know that there are capabilities desired and we're trying to bring sort of like gamechanging technology again to um you know to deliver on some of those capabilities.

>> So it's not just blue sky. It's really grounded in the needs and the requirements of your various customers inside government. Right. >> Yeah. I would say that is our number one criteria when we make an investment is do we see an opportunity again for the spring new capabilities.

Um, and it's it's not a 100%. I would say that maybe 20% I'm kind of making up that number, but 20% of the investments that we do are not necessarily tied to a specific, you know, sort of demonstrated or articulated need. >> Uh, we do do some things that we consider them to be kind of either over the horizon, meaning um, you know, we see trends that are happening in the commercial sector, but maybe they haven't necessarily kind of hit the government's kind of requirements, um, setting process yet. You a good example of that was cloud where you know we did a lot of investing in sort of cloud technology before our government partners were really necessarily thinking that right yeah in that and same with AI >> I would say so maybe 20% are kind of these over the horizon >> so 20% that's a good so the 8020 yeah that's a good that's a good mix and and before and I do want to talk about what we see coming now over the horizon uh in a second but any other thoughts in terms of what separ separates you from a traditional venture capitalist just so our viewers and listeners can understand. >> Yeah.

Um and so I think another big piece of it is um Inqutel has this concept called a work program. So when we are investing in companies um it's again it's not just a financial investment. Um in you know in many of the cases we have an end customer who's kind of acting as a design partner to the portfolio company to the startup. Mh. >> Um there's again, you know, they they have a specific need and requirement.

Our goal is to find the best company that fits that need and requirement that is excited about working with the government >> that has the most cutting edge technology. So typically when we're um when we're investing in a company, we'll talk to, you know, a dozen companies or, you know, however many companies are kind of in that market and and select the one that we think is really the best fit. >> Awesome. I mean there is a it's a cool job. It's a cool organization and and the queue does come from James Bond's Q, right? So who who wouldn't want to work at a place like that? What are the current sort of over the horizon technologies that uh you're most interested in right now? >> Yeah, absolutely.

So I lead our cyber investment practice. So I am very focused the cyber side of things. Inutel as a whole again you know looking very much for technology that um that forwards the missions of the national security community. So AI, you know, can't do any podcast now without some mention of AI, which I'm sure we'll get into and talk more. >> Uh quantum energy, uh micro electronics, uh you know, uh space, commercial space.

So we're we're really investing across a very wide range of technology and how they're all converging, right? That that's what I find sort of mind-boggling is physical cyber space transcends airline sea cyber uh cyber transcends airline sea space it's all kind of coming together ew I all these issues are are sort of merging and how we maximize that is is going to take some time and some effort and and probably some scar tissue. Yeah. But uh and do you have that fail but fail fast sort of mantra at INQEL or can you not afford to fail? >> That's a great question. Um I had mentioned a little bit the work program. So just to like expand on that a little bit more.

The idea behind that is that we actually have the companies developing um you know some additional sort of like enhancements features to the product that then gets piloted by that particular you know sort of sponsoring customer sponsoring agency. Um, so there is that concept of, you know, being able to like actually put it into practice, try it out. If it works, great. >> Iterate. >> If it doesn't, you know, that's okay.

Also, um, I think we're probably more riskaverse than your traditional venture investor. >> That's a whole another topic I'm happy to talk about around like how those work and kind of, you know, they expect a lot of failure and I don't think that Inkutel has the same risk appetite as that. Um but we are able you know wi when we're doing these enhanced products and being able to like really test them out quickly within um within the agencies. >> Uh we actually out of like inqel's investments we have about 500 um technologies that we have invested in that have made their way into various missions and you know sort of use cases. Yeah.

So it's we feel like that's a really good rate in terms of like the number of investments that we make but um but you know there's always risk involved with startups >> and I would say maybe more risk adverse than traditional VC but also a higher risk tolerance than traditional government contracting right so it's sort of in that happy sweet spot there what makes sort of an ideal candidate for inqel to invest in >> so I I would look at that a couple of different ways I think I already mentioned one which is The number one thing we're looking for is is this a technology that is going to bring some gamechanging new capability to our government partners. >> And so we have a we actually have a very deep technical team which is also unusual for an investor and sort of sets in apart. we have a very deep technical team that um you know again as we're looking kind of across a specific domain um really can be able to differentiate between you know this technology and that technology that sort of you know to the layman all sound the same so I think there's an aspect of like really being able to kind of sift through >> it matters right people die if you wrong >> exactly yeah so yeah so be able to kind of like cut through the noise and find the technology um and then the other side of it is you know we are Again, we're we're wanting to invest in companies that are also going to attract top tier venture investors as well. And so, we are looking at some of the same things that they're looking at, like >> who's the team behind this, you know, what is their background? What have what successes have they had? Do we think that they're credible in building this product for this market? >> What is the market, right? Like, is it a big enough market to sustain a venture investor coming in to invest in a market? That's not always required for us. like we can do things that are maybe a little bit like smaller markets or more niche markets, but um but that tends to be important.

And then the third is the technology and are you know is this are they building a a product that we think is going to have you know broad applicability because one of the things that we do look for is to try and uh fund dual use technology that has strong commercial market as well as the government market >> which is great. And do you also look sort of at a matrix where maybe we're falling behind say China or others to sort of look that these are areas we need US investments in. >> Yes. Yeah. And so that is um that's actually kind of a a new initiative at InQel.

So, traditionally or historically, we've really um we've really been investing kind of in in an area where there will be a government user of the technology, right? But not all of the critical technologies that we're thinking about necessarily are going to have a customer in the government, but they're still really really important for our national security >> and our economic security. >> Right. And our economic Exactly. Yeah. Um and so we are also making investments in strategic um areas that are important for national security >> and um those include things like quantum you know energy like micro electronics you know it's not necessarily that we're going to have a customer for a an AI chip but it's imperative that we be producing those in the US and that we be funding US companies to develop this type of technology.

Some of those are races we simply cannot afford to lose. Quantum and a postquantum environment. Yeah. If we lose that one, game over in a in a traditional sense. So um and obviously in AI >> the application of that becomes so significant.

So I'm happy happy to hear that. Um let's talk a little bit about cyber since you are >> my favorite you're leading a lot of those efforts and and sort of how do you see that strategy? uh has it changed? I mean obviously technologies changed but how do you see that evolution in terms of INQEL's investment in the space? >> Yeah. So cyber has been an area where we have invested from the very beginning. We were one of the first investors in Fire Eye for example. >> I did not know that.

>> Yeah. Yeah. >> Oh boom. >> And so you know it's been an area we've been really focused on for a long time. I think you know some of the geopolitics have really shifted some of the ways we're thinking about um about cyber.

So you know some of the geopolitics and also just like really fundamental technology changes um but you know obviously looking at uh you know the the increasing capability of China things like the volta typhoon salt typhoon which really are threats to our critical infrastructure and again to our national security. things like the the war in Ukraine, which has really brought to the surface the importance of um you know our our allies and also of national resilience really when it comes to cyber and being able to you know increase the the resilience of our critical infrastructure but also just of the data and systems of the country. And when you think about it, you used to treat cyber as its own island, but you cannot divorce cyber from geopolitics. And quite honestly, any form of conflict is going to have a cyber dimension to it, whether it's a collection purpose or an attack or >> you name it. So I think trying to get your arms around that is hard but but essential.

What about supply chain? Uh what about operational technology? Are these areas you're looking into as well? >> Yes, very much. Um so I think supply chain inutel is looking at broadly across supply chain because obviously that you know that's very important in terms of from a hardware and software perspective >> where components are made where products are made um >> from the cyber side of things we've spent a lot of time in software supply chain security >> uh both because if you think about just um how much software is developed using open source today and open source is developed globally And it's, you know, there's a lot of um a lot of vulnerability, a lot of potential malicious actors who could use open source sort of as a vector as a vector in. So we've made a number of investments in kind of the supply chain security side of things >> and just getting visibility across our supply chains is really hard. So that alone is a massive challenge. But to your point with open source and and I might add firmware as well, right? and firmware.

Yeah. And you mentioned operational technology where I think firmware is also important. You know, that's a really really hard area to invest in and it's a really you know challenging area as we all know to secure just because of kind of the legacy technology that's you know across a lot of our um critical infrastructure operational technology. But we think it's a really it could not be a more critical area >> from a kinetic impact consequence it is and and they're all being netted through I IOT types of devices and and the like but it's a 40-year technology sometimes. Exactly.

>> And these run some of the most important functions of our economy and country and and the like. So I do hope you double down there. What what do you think some of the biggest gaps are in current cyber funding? You know, I personally think that we are dramatically underinvested as a nation in our cyber defenses. Um, you know, I think as we look kind of >> agree with that foot stop here. >> I mean, yeah, as we sort of look to the future conflict, um, we're so vulnerable from a cyber security standpoint.

You know, 85% of our critical infrastructures private sector owned. Mhm. >> We have some great uh government agencies that are really focused on kind of information sharing, threat sharing, public private partnership, etc. But I don't know that we have you know the capabilities to respond as quickly as we need to and we also I think need to focus a lot more kind of on the resilience side of things that if things do go down they are going to go down to get back up really quickly. >> Yeah.

But you know I I think generally areas that we see gaps and we think are really interesting obviously AI is changing everything. So if you want to go there go there. >> Yeah. So you know I just think like the idea of software being generated by AI like that is going to be a complete gamecher right we were talking about software supply chain security and all of a sudden you know we're going to be in a in a world where 80 90% of the code that is being written is being written by AI systems right >> so that's going to be just a really interesting area to to be paying attention to um AI systems themselves securing AI securing AI itself is going to be uh you know is certainly challenging there's a lot of attention being focused on that so I think we're in a good position in terms of >> um securing AI systems but it's an area where like things are just moving so fast you know how do you build for something that like the underlying technology is just moving so quickly that you know >> every new iteration sort of is going to take securing it and understanding it all over again >> and I think that's happening it% and we're investing a lot in sort of like the explanability um and security of of AI. >> Great.

>> Um one other thing I'll mention like in terms of gaps is um and it gets back to kind of like our ability to like respond to things very very quickly. Mhm. >> Um, so when we think about AI, we also think about AI for cyber security because we know that adversaries are already starting to use AI to do reconnaissance, you know, to develop new malware, to um uh, you know, to to attack systems. And we we can't be responding to that at human speed. We have to be responding to that at machine speed.

>> Exactly. You know, we've had a number of guests and I I know it's an unfair straw man almost, but does AI benefit red or blue? The attacker, the defender? Almost every government official will point to the attacker because they can't afford one bad day. Almost every uh siso or the like that we've had said it benefits the blue. The truth is it benefits both, right? It's a double-edged sword. But uh at the end of the day, if we're not leaning forward in this, we are going to be overtaken by events and that's something that has to constantly constantly change.

And I'd be curious about space is that uh and maybe undersea if you want to go there, but uh are those two areas that I think are all merging, but I'd be curious what your thoughts are. Yeah. I mean, I think what you're saying in part is that like I mean I'm going to go back to cyber security again, but cyber security everything that's what I mean, right? Yeah. Everything like everything is connected. We have more and more softwaredefined everything software >> based space systems you know weapon systems etc.

Um so I I absolutely we're very very interested in the cyber security of space systems and you know there's a few areas. One is like the secure communication links. I think that's an area that we think is very important. Um, and then the the security kind of of those like assets that are being put into space like as as the kind of underlying technology gets more >> commoditized and you know maybe like part of the reason people haven't focused as much on it is because they're very bespoke and you know sort of exquisite systems that >> it's sort of the security by obscurity like no one knows what we put in there so how are they going to how are they going to hack it? But as things get more interconnected and kind of more commoditized on the uh the infrastructure sort of system level, I think that's going to become more important >> especially as commercial space takes a more and more prominent role as it is. So I I mean uh we recently had u uh Tory Bruno on talking about sort of UL and national security launch and and what he was focused on 10 years ago versus today is night and day just because launch capacity everything else has changed so dramatically.

Yeah, I do think it's an area where again I think a lot of people haven't really accepted or really given enough thought to the security >> of space systems >> and you know it's an area that we have spent a lot of time thinking about and there are you know there are a few companies that are in that area like you know we're thinking about it from the standpoint of like where can we find commercial technology or >> uh you know startups focused on it but I think that the buy the buyers aren't >> absolutely >> there yet maybe it's going to have to be kind of in the contracts that the sec you know that the security needs to be a piece of it >> and whether it's assured pnt and and and all these issues. One thing that I'm not going to put you on the spot but we did a long report looking at the need to designate space as a critical infrastructure sector. The fact that it >> hasn't been to me is just >> sort of missing the boat. But uh I'm not going to put you on the spot. It >> feels that way.

It certainly feels critical. Yeah, it is as critical as critical can be critical and uh whether you can move people from emission insurance to deploy forces, project power, you can't do it without space being secure and uh and clearly our adversaries in public reporting are investing very heavily not only in ASATs but also more conventional means uh uh to styy our capabilities in space. So I do think that's a big uh big area that we are near and dear uh near and dear to us. But I'd also be curious any any examples you can talk about where inqout has had a demonstrated uh uh capability and impact in cyber. >> Yeah.

Um there's a lot I can't talk about. >> I know. Which is the cool stuff which is what makes it cool. >> Right. Right.

Exactly. Um but no, we've got a lot of just incredible um companies that we have invested in across time and maybe I'll mention one of them. It's a >> it's a fairly early stage company called Volche. >> Um we invested in them in 2022. >> Okay.

>> Uh we did the this work program, right? So we talked about sort of the um we've got these kind of government sponsors who are acting as design partners with the company. Um the company builds has built out um sort of a a a very thorough database of uh known or of vulnerabilities like you know much much more expansive kind of than the CVE database in terms of like speed of getting things in there and kind of the breadth of what's in there >> and also has built out a big database of known vulnerabil of known exploits. So, you know, being able to look at like Right. Exactly. match the two up.

>> Um, and they did a a work program for two different uh, Inutel government partners has been, you know, acquired by, you know, even more than that. You know, three or four, um, agencies have actually now ended up, uh, you know, working with them to kind of enhance >> sort of a shared services. That's that's saves the taxpayer a lot of money, right? really really good point is that there is sort of this leverage and and again this company you know has gotten >> millions of dollars from private sector investors also right so they're being funded by mostly the private sector I mean inutel in the grand scheme of things our dollar amount is small that we're giving >> but it was an early mover that gave it credibility right >> exactly yeah yeah and we invested in the company when it was really just a couple of people and you know they now have raised a couple rounds of funding um are doing great both in the commercial sector and um uh in the private sector and the public sector. So it's a it's a really >> yeah has has made a big impact on a lot of behind the scenes maybe kind of security missions uh in terms of like really being able to understand >> vulnerabilities and sort of the exploits that are happening out in the wild >> and and you sort of mentioned a couple of people when you look at sort of your investment thesis. Uh do you sometimes bet on the people because you know they're they've done cool stuff or they're committed to the mission so uh fully or is it always about the technology or is it a combination of both? >> Yeah, it's a combination.

Um in this case you know we were technology is super interesting also a repeat entrepreneur who has had successful companies in the past and really is like could not be more of a domain expert in you know in this particular area. Um, as Intel has been around and investing for a while, uh, we have had a lot of, you know, repeat founders who have invested, who have built companies, ended up selling them or going public and then started new companies. And so that's kind of exciting to sort of, you know, be there kind of full circle. >> Um, and then there's a lot of like alumni. So um you know there's a company that we are recently working with that is still in stealth mode right now but um a bunch of people who are former palunteer >> you know who are doing some things in um in the cyber domain as well.

So you know I think yeah so it's it's people at earliest earliest stages the people is almost the most important thing you can be betting >> so similar to a venture capital traditional venture capital investment as well but >> you also have the government defining some of the requirements and needs and it's matching you're a bit of a matchmaker in that respect as well. What about sort of biotechnology and and sort of uh where that fits into all of this because that too has a cyber I I can't think of any discipline that doesn't have a cyber twist to it anymore. >> Yeah, that's what I keep telling everyone. >> Yeah, it's true though. It is true.

It's true. >> On the biotech side, I would say we haven't really done anything in cyber security on biotech. Incutell does have a team that's looking at biotech and has made >> you know some some really interesting investments um across that area but like I think that that the the cyber security side of that has been not as you know hasn't been a real primary focus. >> Well I think initel has an amazing story to tell. first 25 26 years has been uh I I'm sure it's had to pivot and refocus and pivot and refocus but at the end of the day lives have been saved the mission has been improved.

How do you make sure the next 25 years look similar? >> Yeah, that's a great question. Um, you know, it's interesting because we were kind of talking before this how defense tech has become, you know, a really hot area or there's just a lot of money going into defense tech right now. And I think it's great that Inqutell is, you know, continues to sort of focus on our government partners and their missions um without regard to kind of again sort of the financial outcome that will be um >> and so I think that uh you know that Inkutel is is continuing to do kind of more more of the same like really focused on how can we bring new capabilities gamechanging capabilities how can we keep you know the country sort of ahead of as a as a leader a world leader in technology. >> Um and so I think that we you know we like to kind of keep our eyes focused on on that. >> Inqel is an incredibly missiondriven organization.

Mhm. >> Um just you know an incredible group of people who do come from government who come from private sector you know all a lot of different domains and um you know every every day what we're really focused on is like how can we be the best partner um and how can we you know bring the best technology kind of without yeah without regard to um uh necessarily kind of >> finances alone. I mean, making a difference matters, right? And the mission matters and to wake up every day and find cool ways to enhance that and advance that, I think, is is pretty >> special. >> Yeah. Katie, so as a Stanford Cardinal, an MBA from uh the the the great university, how does Inqoutell fit into the broader innovation and and and ecosystem and honestly the American engine that makes us unique? How how do you see yourselves fitting into that entire puzzle? >> Yeah.

Yeah. Actually we have sort of this whole concept of the national capital stack >> that goes everything from kind of basic research applied research um >> uh you know commercialization of the research growth etc. And it's a combination of uh you know government grants which we all know sort of like basic science government grants have been a tremendous >> uh driver of innovation in this country. everything from kind of early government grants to the DARPA and ARPAS that are really sort of building more applied um applied types of technologies >> to kind of the angel investors, early stage investors, the DIUS that are helping to like you know sort of maybe commercialize um some of those advances. Mhm.

>> Inutel kind of fits into that category where um you know where we're we're taking things that uh are are ready to be commercialized and are being commercialized and are ready to actually you know be adapted for you know specifically for government use. >> You know the real secret sauce of in my eyes uh that makes the United States unique and special is is innovation. It is the ability to um think what is impossible to some. And quite honestly, the day that people start saying they wish they were born in Beijing or elsewhere is the day I'm afraid. >> Yeah.

For right now, we've got the best best at this. And Katie, thank you for your commitment to our national security. Thank you to our uh to your commitment on innovation and making sure that our country moves forward. So, >> yeah. Well, absolutely.

Thank you for having me and giving me an opportunity to talk about the thing I love best. >> Privilege to have you. Thank you, Katie. Thank you for joining us for this episode of Cyber Focus. If you liked what you heard, please consider subscribing.

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