Startups: Mr. Small Fry Goes to Washington

Robert Shaw, CEO of security software startup ArcSight Inc., was pumped. On Dec. 6, he met with federal cybersecurity czar Richard Clarke to talk about the government's software needs. For a 50-employee company like ArcSight, a meeting with Clarke is comparable to getting invited to a state dinner at the White House.

And it's enough to give other young software companies a case of ArcSight envy. With demand for software sluggish and corporations wary of doing business with small suppliers, startups are lining up to pitch their wares inside the Beltway. Who can blame them? The federal government is expected to increase its $44 billion information-technology budget by 9% in 2003--twice the anticipated growth rate for tech spending nationwide. The newly constituted Office of Homeland Security, for instance, will order up new hardware and software systems for gathering, sharing, and analyzing data about potential threats.

While the lion's share of homeland tech spending is likely to go to industry giants, there should be sizable crumbs for smaller software outfits. The government is even offering them a helping hand. In-Q-Tel, the CIA's two-year-old venture-capital arm in Silicon Valley, has so far invested in 25 software startups. In-Q-Tel CEO Gilman Louie aims to hammer high-tech plowshares into swords. "We want to get these technologies into a form that's going to be useful to the intelligence community," he says. With corporations reluctant to buy technology from startups, the cloak-and-dagger set may be the best hope for software's small fry.

By Jim Kerstetter

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