In-Q-Tel: Tech Investor Perspective | Macquarie Group

Transcript

Technology's playing an increasingly important role  in enabling governments to meet their national security objectives.  With innovation offering strategic security advantage,  the challenge for agencies is ensuring they continue to access the  latest technologies

that are going to keep them in front.  My name is Anuj Goel, Head of Technology for Macquarie Capital  in Australia and New Zealand and I'm delighted to be joined by  Clayton Williams, MD of IQT International Australia, part  of In-Q-Tel. In-Q-Tel's mission is to deliver  the most sophisticated source of

strategic technical knowledge  and capabilities to the US government and its allies.  Clayton is going to talk to us about that critical mission  and share his perspectives on the technologies  at the forefront of the national security agenda.  Clayton, thanks for being here.

Great. Thanks for having me.  I'm must say, I'm really excited to have this conversation.  It's gonna be really good. So maybe let's just start with if you  tell us a bit about In-Q-Tel. Sure.

Yeah.  So In-Q-Tel was stood up in 1999 by the CIA,  who realised that technology was kind of...  Innovation was shifting from government labs and large companies  to these small start-ups in Silicon Valley  and so some really smart people got

together  and figured out a way to have a platform that allows the government to have  access to and leverage and really benefit from all that  innovation that was occurring. And so they formed In-Q-Tel in 1999.  Since then, we've expanded to over seven different agencies in the US  and then, in 2019, we realised that, you

know,  we'd been making a lot of international investments  and that innovation really wasn't, you know,  exclusive to a small region of the earth in Silicon Valley  but that you really had to look broadly to find out where innovation was  occurring.

And so we set up,  at the invitation of the UK and Australian Governments,  our international office in London and in Sydney.  Great. Oh, Sydney. It's great to be

here, to have you here.  So in terms of how we think about sort of the impact that you're trying to  make from your investing, can you tell us a little bit  about what the national security agendas investments are  and, you know, what you're trying to achieve?  Yeah.

Yeah. I think broadly, we categorise it as  'deep tech' and that can be anything from, you know,  a financial tracking company or perhaps a large 3D printer, right?  And so our government needs solutions that  go from very exotic and exciting

to, you know, making sure that this  package gets delivered on time. So we have broad investments across, you  know, quantum cybersecurity, fintech, obviously, all the field tech  that's out there, robotics, automation, to name a few.  Yeah, right, that's really exciting. So how does that translate to sort of...  ...well, some of your success stories

that have really helped  our national security agencies really achieve their mission?  Yeah. Absolutely. We have quite a few wins.  Our portfolio, now, is about 500

companies,  together, announced and unannounced, and a lot of those wins, you know, some  of them, they'll tell us and some of them, we don't even know.  But I think some of the most obvious ones  are investments like GitLab or Anaconda, that are really enabling tools to allow  innovation to happen

within these government environments.  So if you imagine someone working on a secure system  that has no access to tools and in-trade craft  that's out there on the World Wide Web, how do you make those available to them  in a secure way? And really, that's interesting to hear  from the company CEOs,

cos they say, "Well, thank you for  putting us through this kind of rough diligence process to  make sure that our stuff's secure cos, now, we can sell to large banks or  to large industrial firms that have the same requirements for  safety and security." Yeah.

Right. Makes a lot of sense.  And, um, so when you think about the start-ups you've invested in,  how do you really help them with the government,  so the government client? Cos there's quite a large gap between a  staff and a government.

It's an interesting question and that's  an important point because if a company wants to become a  government contractor, there's a lot of ways to do that, right?  And I think we're better served to help companies  that have a really great commercial product  that has a dual use for a government

purpose.  And so if we just change, you know, 5% or add an extra layer of security,  now, it can be enabled for a government process  and that kind of helps two things - one, it doesn't take the commercial  company off their roadmap and then, two,   it allows the government

to have a solution  that they're not paying for every update,  they're not paying for every new version that comes out.  The commercial market's paying for that so it's really beneficial to both  parties. Where it becomes challenging is  when those start-ups wanna speak

government  and when the government wants to put, you know,  these kind of onerous tasks on a start-up.  And so our program helps kind of diffuse and simplify  and streamline that process, where we can actually, you know,  help them engage without developing a

full federal team  or over the course of a few months and years,  we can help develop their sales team to market to a federal audience  and vice versa, you know? A lot of these companies  can't put together the kind of 60-page, you know, contract offering  that an established defence contractor

can  so we work with the government to be able to say,  "Hey, why don't you try this and pilot it  and then see if you really can benefit from this  without trying to put them through this onerous process?"  Yeah.

Right. That makes a lotta sense. That's great, actually.  And so when we think about some of the areas you invest in  and I really thought the sort of autonomous systems  and industry 4.0 were quite interesting

and I was thinking how could that help  your government clients? Yeah, that's interesting in a post-COVID  world, right, those those two topics really resonate  because anything that can be done autonomously  is obviously beneficial in kinda today's more recent world  and we've seen kind of the disruption

with logistics internationally.  But the way we think of autonomous systems...  And that can be anything from from a satellite to an underwater robot,  right, anything that provides situational  awareness, remote sensing,  how to process on the edge, how to make

decisions rapidly,  those are all things that can improve the safety of someone  operating in the field. As all these sensors are kind of  ubiquitous and collecting digital dust on all of  us, it lets you know what kind of risks  you're posing

by walking down the street, for example.  And on the industry 4.0 side. it's really interesting.  I think, especially in Australia you see this kind of,  "Can we manufacture things here? Can we create things here?"  And I think that that's a really

important capability  for a nation to have and so investments in 3D printing, in  logistics streamlining, ensuring that the package you created  here is the package that was delivered there  is all critical things for our government customers.  Yeah.

Right. That's really good. And I guess, looking even further ahead,  then, how do you think about what sort of  horizon-style sort of areas, sectors that start-ups should be  thinking about

that governments will need in the future  and will be focus areas? Yeah. Yeah.  I think, you know, there's certainly some really interesting, ground-breaking  stuff, like quantum technology, that, you know,  when it becomes more available and more

regularly used  has a profound impact on security and being able to rapidly handle that  kind of an environment is something that our governments'  customers certainly care about and are kind of  constantly asking for you know, what's the latest?  Cos it's moving so fast and so small,

right?  So it's interesting to try to keep up with that  and make sure that we're informing them, as best we can,  as to the opportunities and the threats posed by  these kind of ground-breaking technologies.  I think robotics is the same way.

You know, it's one thing to have your  joystick and your drone flying around but now, you see companies  like Emerson are able to navigate inside a building  and provide autonomous flight to map an indoor environment.  And so there's a lot of interesting plays  where a platform is becoming

multipurpose and multi-use  and so being able to understand kind of the operating environments  that are expanding and what that means is important.  Makes sense. So, um, a bit about you. So you moved  here from the US, clearly.

And so how are you thinking about  In-Q-Tel in Australia and what you're looking to achieve down  here? Yeah. Yeah.  Australia is really a great place for innovation  and we're really excited to...

especially in  the deep-tech environment, some really great companies.  Advanced Navigation is an early investment we made here.  That kind of is the brains behind all the positioning  for all those autonomous systems I was talking about.  A lot of deep, deep tech that's really

world class.  And so, one, supporting those companies, making sure that the Australian  Government here is leveraging those companies  and then, making sure that that technology makes it  over, I guess, the larger pond and into the UK as well,  to make sure that if there is really

innovative technology,  that we're all making use of it. And what's interesting about that as  well is it's also bringing together these  companies... Not companies.  ...these countries to really think about innovation  together, right?

And so that's been a really interesting  aspect of being here on the ground,  is making sure that you make those connections  and that everyone's in the conversation. And how are you seeing the tech talent  you're seeing in Australia versus what might be there in the  Valley?

Yeah. Yeah. Yeah. It's interesting.  I was actually just talking with the CEO of Primer,  who's actually moved to Australia during

the COVID times.  So I think the main takeaway is that innovation happens everywhere  and there's certainly world-class talent here,  a really strong university systems, really strong government support of deep  tech and really, a culture that's ready to  take it in and use it, right?

And so, I think, when it comes to  Australia, one of the kind of recurring themes that  we're hearing is really how to compete when there's  just less people, right? And so you have the same area masses to  cover, the same challenges that, you know, a  larger physical country

like the United States has  and that's where the things like automation  and being able to make decisions with less human-in-the-loop operation  really become critical for Australia. Yeah, like, as you were thinking, how  you control the borders... Yeah.

Exactly. Yeah. The same border to  monitor. Oh, actually, I think it's even worse.  I mean, how do you do that? So there's all sorts of remote sensing,  there's autonomous platforms,

there's any number of analysis that has  to be happen after you get all the data in on a  computer sitting in a box somewhere, you know?  So that whole process is a real challenge for Australia  and I think a lot of innovation is happening to solve those problems.  And as you think about, you know, making

investments in Australia,  what are you looking for, in terms of what's your criteria  or if I was a tech start-up, when should I come talk to In-Q-Tel?  Yeah, I think tech differentiation is really what we're after.  So I think we talked about drones earlier  so when you're talking about a drone

platform, you know,  there's a lot of companies that can offer a drone delivery  but what about the company that can do package pick-up, right?  So all the different things that are kind of missing pieces to...  We call it a 'con-op' but basically, an end-to-end mission, right?  And so finding the gaps and filling up

those gaps with innovation  is really, I think, the key to In-Q-Tel and what we really bring to the table  that... You know,   cos a lot of these start-ups, they can't, you know...  There's no start-up doing a new S-16, right,  but there's some really interesting

components  that if we could integrate into those systems  would be critical for the governments that we support.  And so that's really what we're looking for, is kind of this...  ...this really innovative technology that we can we can leverage into larger  systems.

Yeah, and, um, yeah, so that'll be  really interesting. I think there's quite a bit here and I  think South Australia and other markets have a lot of that  sort of industry. So, OK, and, um, you know, when when you  think about sort of what In-Q-Tel does, it was  really interesting to me

that In-Q-Tel's a not-for-profit and at  the same time as a VC. So how do you think about that balance?  Yeah. Yeah. That's a question we get often.  And I think there's a really good reason

for why we are a non-profit organisation  and really, that's because our government customers  really wanted to ensure that we were motivated by mission, right?  And so a lot of the other venture capital investors  are motivated by profit, right? And when you're sitting in a board  meeting,

they actually have a fiduciary  responsibility for profit, right, of the company.  And so we have a different focus, right? Ours is focusing on maximising impact  with our government customers so that's what we get graded on  by what we call 'pilots' and 'adoptions of technology'  and that's our sole focus,

is to ensure that the company is  successful but also successful in their delivery of  products to the three governments that we  support. And so, I think, uh...  That actually, I think, is really compelling  to a lot of the start-ups that we talk

to  because it's just an interesting, refreshing voice, I think,  in the boardroom to have, right, and I think the government customers  really appreciate that, that we can have those conversations in  those boardrooms you know, with government contracts, you  just legally cannot do.

So the non-profit, while it sounds a  little odd and, of course, you know,  when we when we do make money on our investments,  we can roll that into earlier stage companies  that maybe don't have a product ready but it's a really great idea but if you  wait too long, you know,

they're already worth $300 million  and you can't write a cheque that large. So we make really good use of our  funding. And, yeah, non-profit organisation!  (chuckles) Excellent. Well, thank you so much for  your time today.

It's been really interesting and  hopefully, we can see you making some more  investments down here. Yeah. Absolutely.   Thanks for having me. Thanks.