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Helping Military Refugees Succeed Without Uncle Sam

Science & Technology


No one knows more about how much defense scientists can contribute to the commercial world than James A. Cole, managing director of Spectra Enterprise Associates, a $25 million venture capital fund in Westlake Village, Calif. Since 1986, Spectra has launched or invested in 17 electronics companies that have sprung from military research. Cole frets over the fact that about 50% of defense engineers who have tried to run Spectra companies have failed so far. They typically "don't think strategically, don't think products," he gripes. "They think solutions, but they're not trained to finish a task."

The novices are catching on, however. Spectra's companies employ about 1,750 workers, and 13 of the 17 are profitable. Three have gone public. Some 70% of their combined revenues are in commercial work such as image-processing and wireless communications. EEsof Inc., a software-design company in Westlake Village, is typical. Using software tools created to design electronic-warfare circuits, its engineers have written software that helps build microwave-communications circuits for clients such as American Telephone & Telegraph Co.

Spectra wants each company to get 10% to 20% of its sales from Pentagon development contracts. That's possible because military research-and-development spending is still more robust than the overall defense budget. "The trick," says Cole, "is to subsidize your commercial work with government-owned equipment and Defense Dept. progress payments, and make sure you have an endgame for commercial products." Cole believes this philosophy will produce a 20% annualized rate of return for Spectra backers by the time the fund matures in 1998. What's next? A sequel to Spectra in 1993.Eric Schine in Los Angeles

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