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The Journal Gazette

Saturday, January 14, 2017 10:01 pm

Getting a foot in government's door

Nafeesa Syeed | Bloomberg

Jason Wagner’s cyber startup sells a digital platform federal agencies need. But lacking the heft or connections of a major defense contractor, it would be more trouble than it’s worth for him to seek a coveted federal contract. And he’s not alone.

During 15 years as a contract employee for intelligence agencies, Wagner saw cybersecurity analysts waste time transferring data for their investigations across multiple computer applications. So last year he started Tensor Wrench, which makes such information-sharing easier.

Now with a team of six, his customers include General Dynamics Corp.’s Mission Systems division, which helps run communications systems used on satellites and by law enforcement. But he still hasn’t put the biggest potential buyer – the federal government, which spent $82 billion this year on information technology, about eight times Apple’s research and development budget – on his list of prospective clients.

"The government is a big juicy target," Wagner, 38, said in an interview. "It’s tempting, but you got to figure out how much time you want to invest and whether you can afford that. When we added everything up, the answer came back: not now."

Many cyber startups make similar calculations in weighing whether to do business with the government, where they face a complex and slow procurement process that can strangle smaller companies. Amid rising cyber threats, the gap in getting the latest technology tools is particularly worrisome for federal civilian agencies, from the Department of Veterans Affairs to the Department of Agriculture.

"We’re expecting the smallest of federal agencies to do as good a job on cybersecurity" as the Pentagon, U.S. Chief Information Officer Tony Scott said in an Oct. 18 speech in Washington. "And you know that the chances of that happening are slim and none."

Not being able to use new tools "hurts" the government, said Aaron Snow, the co-founder of 18F. The office was founded by the General Services Administration, which is in charge of government property and purchasing, to help agencies build and buy digital services. "Cybersecurity is just one area," Snow said in an interview. "It also leaves us less efficient, it leaves us less productive, it leaves us more behind – period."

The Pentagon and intelligence agencies have several well-known programs to help accelerate technology acquisition. There’s the Defense Advanced Research Projects Agency, Defense Innovation Unit Experimental and In-Q-Tel, the CIA-backed venture-capital firm that helped fund Palantir Technologies. Civilian agencies are now trying their hand as well.

Snow said he understands why a small company would think the cost of trying to get government sales is too high, the conclusion reached by Wagner of Herndon, Virginia-based Tensor Wrench. For tech services vendors, the main challenge is learning the procurement process, while for product sellers it’s gaining government safety certifications, Snow said.

Yet "some of those small agencies have some of the most important information and represent some of the most important assets that our country has," said Scott, the government’s CIO.

18F has added more tech experts to its contracting teams and opened an office in San Francisco, where startups can meet government officials. It’s also experimenting with moves meant to cut red tape, including "micro-purchasing" particular goods that cost less than $3,500, and quickly authorizing some small firms to do "agile" tech projects.

Michael Shinn, founder of Atomicorp, didn’t intend to seek government sales because typical acquisition cycles can take two years. But some civilian agencies approached him and used the government’s micro-purchasing program to buy his startup’s cybersecurity software that protects devices, which runs $300 per license.

"I’ve seen my share of startups who have failed because they focused entirely on selling to the government," said Shinn, whose company is based in Chantilly, Virginia. "It takes so long they can’t stay alive to do that."

Startups with enough time and cash hire advisers to navigate the federal procurement process. That can cost $250,000 to $1 million. Coalfire Systems Inc., a Westminster, Colorado-based cyber risk consulting firm, has worked with dozens of companies applying to sell through the Federal Risk and Authorization Management Program, known as FedRAMP, which aims to fast-track the government’s adoption of cloud services.

"We’ve had companies come to us and say, ‘Hey, we want a piece of that pie. We know it’s big and there’s a lot of it. We got some great tech and help us understand the business opportunities,’ " said Kennet Westby, Coalfire’s president and co-founder.

The only option some startups see is working under established government contractors. This year, CSRA Inc. tops the list of companies with the most information-technology contracts at federal agencies outside of the Defense Department, with deals totaling almost $1.5 billion. It’s followed by Lockheed Martin, Hewlett Packard Enterprise, Booz Allen Hamilton Holding and Accenture, according to Bloomberg Government data.

Scott Frederick, who heads the federal practice for venture capital firm New Enterprise Associates Inc., said he regularly meets with senior officials at the departments of Commerce, Treasury, Energy, Veterans Affairs and other civilian agencies to see if his portfolio companies can help fill their technology gaps.

"I will then ask them point blank, ‘How do you prefer to buy?’ What they’ll often say is, ‘Oh we’re basically a Booz Allen shop, or an Accenture shop,’ and then I introduce our company to that intermediary," Frederick said in an interview. "Is it perfect? No. Do they lose points on the deal? Sure. But we can help at least address a need."