Big Government Courts Small Startups

East Bay Times

High costs, mountains of paperwork and long wait times often make working with the government a nightmare for entrepreneurs, but some agencies are trying to change that by promising startups faster and easier access to federal capital.

The goal is to give the government better and cheaper access to cutting-edge innovation beyond Capitol Hill, but industry experts warn that the red tape that has traditionally hindered federal deals won’t disappear overnight.

“In order to remain the … best Air Force on the planet, we have to be constantly innovating, and particularly when it comes to high-technology solutions, we’ve got to speed it up,” Secretary of the Air Force Deborah Lee James said in April during her second visit to Silicon Valley in four months. “And we’ve got to make ourselves accessible to more companies who can help meet our needs.”

There’s a clear need for new technology in government. The Department of Defense, for example, still uses floppy disks for certain tasks, and other agencies are running systems that use 50-year-old components, according to a report released last month by the U.S. Government Accountability Office.

James launched a new streamlined system in January that she hopes will make it quicker and easier for companies that don’t traditionally do business with the government to secure Air Force contracts. Under the current system, once a company submits a proposal, it can take several months to a year to hear back — an eternity in the fast-paced Silicon Valley world. James hopes to reduce the wait time to as little as three weeks.

The Department of Defense runs a similar program geared toward Silicon Valley startups, and Secretary of Defense Ash Carter beefed it up last month. During a presentation at Mountain View’s Moffett Field, Carter announced he had pulled in former Palo Alto Networks executive Raj Shah to run the program. In another change, Shah now reports directly to the secretary himself.

And it’s not just the military that’s seeking out startups. In April the General Services Administration, the government arm that provides logistics support to federal agencies, launched a “Startup Springboard” that makes it easier for new companies to win government contracts.

“There’s just a general movement that you can feel,” said Meagan Metzger, founder of Washington, D.C.-based accelerator Dcode42, which focuses on helping startups win government business.

The interest is there, at least from some tech startups. Elon Musk’s SpaceX recently fought its way into the military sector, winning an $82.7 million contract to launch an Air Force GPS satellite into space in 2018. The April deal ended the grip that United Launch Alliance, a joint venture of Lockheed Martin and Boeing, previously held on military launches.

Box, a Redwood City cloud storage company, won a similar victory last year — scoring a contract with the Department of Justice. The company did not disclose the value of the deal.

The federal government has long had its hand in emerging Silicon Valley technologies — it was the DOD’s Defense Advanced Research Projects Agency (DARPA) that helped bring us a little thing known as the internet and that is credited with jump-starting the self-driving car movement in the early 2000s. But insiders say federal agencies generally are risk averse and tend to give their business to the same well-established companies year after year instead of taking a chance on a startup.

So far this fiscal year, nearly a third of the roughly $200 billion the government spent on contracts went to 10 companies, according to federal data from USAspending.gov. Aerospace and security company Lockheed Martin was at the top of the list.

Kuang Chen, CEO and co-founder of Oakland company Captricity, said he’s been trying for years to help the Department of Veterans Affairs clear its notorious backlog of veteran disability claims. Captricity extracts handwritten data from paper forms, allowing a company to digitize records without typing the information by hand.

Though Captricity hasn’t yet gotten anywhere with the VA, it scored a contract with the Food and Drug Administration in 2013 and the Federal Election Commission last year. But those deals also cost the company. Chen estimates Captricity spends more than $100,000 a year to maintain the special security verification the federal government requires.

Many Silicon Valley startups balk at the steep financial cost and time it takes to win a government contract.

Chris Finan, CEO and co-founder of Menlo Park-based cybersecurity company Manifold Technology, said the government could benefit from Manifold’s unique approach to security, which uses blockchain to store data linearly, tracking every change made to each file. But it’s not going to happen in the near future.

“The idea of us as a little startup navigating through the morass of the government contracting process is just not realistic,” Finan said.

He added that while he’s excited about recent initiatives to make government more accessible to startups, there’s still much to be done.

“The task ahead of them is a big one,” Finan said. “It’s not going to be easy.”