[ISN] Innovation Center Nurtures Newborn Security Companies

[InfoSec News]

http://www.washingtonpost.com/wp-dyn/articles/A13360-2004Aug18.html

By Ellen McCarthy
August 19, 2004

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.

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.

"It's really good for us because we can identify new technologies and
processes in these small companies, put money in their pocket and go
to market," said Mark Gembicki, managing director of BearingPoint's
critical infrastructure program, who keeps an office at the incubator.  
"CIC is a way of vetting those companies in more detail and giving a
company like BearingPoint assurances that the technology is good, the
management is good."

In less than a year, CIC grew from occupying one floor of its
Annapolis office building to three, and it's now home to 14 start-ups.  
Unlike the incubators with foosball tables and keg parties that became
ubiquitous during the late 1990s, CIC is a mostly serious place with
entrepreneurs who have cycled through earlier companies and careers.

While CIC's residents are all in the security sector, their missions
vary widely: PharmAthene is a biotech firm creating treatments for
anthrax. UTrue Inc. sells technology to help protect large cargo
containers. Lighthouse Communications Services is developing GPS
systems for cellular devices. Real User Corp.'s technology is a
replacement for computer passwords. Users are asked to remember a set
of photos of human faces, then pick out the familiar images from a
random series of faces in order to log in. (Real User's
highest-profile customer is the Senate.)

Alon Moritz, chief executive of Moozatech, said he spent six months
making regular trips to Washington in an attempt to catch the eye of
government buyers.

"It's a profession in and of itself, trying to sell to the
government," Mortiz said. "Since I moved in here, the amount of
interest from government agencies, if I could measure it, has gone up
1,000 percent."

CIC has a partnership with the National Security Agency and meets
regularly with research and acquisition officials from the Department
of Defense. Glaringly absent from the incubator's list of sponsors is
the one organization all of its companies want to serve -- the
Department of Homeland Security.

Elstner says he hears "loud and clear" the complaints of
private-sector companies finding it difficult to sell to the
Department of Homeland Security. The center's strategy is to first
develop a working relationship with the people at the agency and prove
that CIC has something to offer before asking the department for
formal or financial support.

"That's part of why this place was built -- to address the
frustrations of the private sector as the public sector gets into
gear," Elstner said. "Have we gotten any DHS money? Not yet. Do we
want to? You bet. Do we think we will? Absolutely."