Executive Summary
In-Q-Tel,has nearly two decades of diverse experience in strategic business development and product design. In-Q-Tel delivers leading-edge information technologies to the Central Intelligence Agency As a pioneer in the inte.ractive entertainment industry, Louie’s successes have included the Falcon, F-16 flight simulator, and Tetris, which he brought over from the Soviet Union. Most recently, Louie served as Hasbro Interactive’s Chief Creative Officer and General Manager of the Games.com group.

Prior to joining Hasbro, Louie served as Chief Executive at a number of corporations, including Nexa Corporation, Sphere, Spectrum HoloByte, and MicroProse, which was sold to Hasbro in 1998. During the course of his 20-plus years in the technology industry, he has managed mergers and acquisitions, developed a range of financing arrangements leveraging venture capital and the public markets, and negotiated major licensing deals while remaining actively engaged in the design and development of award-winning products and technologies.

Louie has served on the board of directors of several corporations and groups, including Wizards of the Coast, Total Entertainment Network, Direct Language, and FASA Interactive. He is on the board of the nonprofit venture fund NewSchools.org.

A nationally recognized leader and speaker in the fields of entertainment software, educational software, and translation and media services, Louie has established himself as an expert on the critical relationship between technology innovation and national security. Louie completed the Advanced Management Program/International Seniors Management Program at Harvard Business School, and he received his bachelor of science degree in business administration from San Francisco State University.

Journal of Homeland Security: How did you come to In-Q-Tel?

Louie: It was a total accident. I had just sold my computer gaming company, Microprose, to Hasbro, where I became the Chief Creative Officer for Hasbro Interactive. And I was participating in this promotion for a magazine publication: Who was the best “top gun” pilot in the big-business world? We had all these former fighter pilots, who are all now corporate executives, to go up in T-28s over Atlanta to see who was the best.

The American I ended up dogfighting was Randy Jane from Heidrick & Struggles. And after our session, he said he had this really interesting company he was recruiting for, saying it was a very “unique” and “unusual” opportunity. After I read the white paper, it was obvious that it was a project that Dr. Ruth David and others were considering developing for the CIA. It was clear that the CIA was attempting to try to fill a gap—a gap in the IT space. How do you attract the providers of IT and the creators of IT to the government, a sector that young companies have historically—at least over the last 10 years—stayed away from?

The paper indicated that In-Q-Tel would address several challenges: a cultural gap, a technology gap, and even a language gap between government and the private sector. And I was very intrigued about creating this concept of a middleman that would sort out and translate government in terms of innovation and of their needs from the software industry to find the right marriages between the two.

The only question I had was whether or not the CIA was really committed to this. But after speaking to the Board of Trustees, to Paul Kaminsky, Norm Augustine, Bill Perry, really great people, I realized that this was not just a checkbox that someone wanted to fill. Post–9/11 now it’s obvious, but back in 1999 there was an argument about whether or not IT would really work.

Journal of Homeland Security: What, in your opinion, have been the major success stories for In-Q-Tel thus far? Also, what effect did the events of September 11th have on your company?

Louie: While I probably should not get into the tactical areas where we’ve been successful, we have some very good metrics for measuring success. We have 22 programs right now running within the agency. We’re touching 2,000 business plans. And these are great metrics. But I think the most powerful thing that we’ve been most proud of is that In-Q-Tel is now considered an accepted group by the agency. We’ve been invited in to look at the agency’s toughest problems. CIA people call us—not just the senior people, but the junior people as well—when they are trying to work through a knotty IT issue. And the CIA is very concerned about not just the best technologies but also the best practices that accompany that technology. I think this transformation has been our greatest success—even more successful than all the great technologies we’ve made investments in.

As for the impact of 9/11—we were originally designed to be a five-year experiment. There were lots of questions, such as “Will this new model work? Can you go out and touch these companies and convince users in the agency to use this stuff? Can you transform the culture enough so that it aligns with the business process of intelligence?” These questions were all valid before 9/11.

I don’t believe our standard operating procedures have changed much as a result of 9/11. Before 9/11, there were a number of technologies the CIA wanted us to take a look at. This showed a lot of vision, a lot of good thinking from the very beginning. The only difference today is that instead of waiting for solutions two years in the future or the long term, the CIA needs solutions for the short term: in other words, give us what you have right now.

Journal of Homeland Security: With your success thus far, there appears to be a number of government agencies that are considering development of their own “In-Q-Tel” to meet their own unique needs. What suggestions would you have for these agencies, given your experiences over the past 2 years?

Louie: First, In-Q-Tel requires the leadership of the sponsoring organization to really be behind it. I don’t think we would be successful if George Tenet hadn’t said from the outset, “This is my program.” If we were buried down in the ranks as just another research and development organization, In-Q-Tel would have operated for a few years and then just faded away. But because George wanted this to be successful, and everyone at the agency knew he wanted it to be successful, it’s made a huge difference.

Change is hard and very painful. And technology is one of the most painful kinds of change. Frequently, there’s a point in time where you have to slow down what you’re doing and become unproductive for a while to adapt to these new cutting-edge technologies. That kind of patience requires leadership. Having George behind it and others at the senior levels of the CIA, all the way down to the rank and file, was one of the keys behind our survival and successes. Without the support of the person running the organization, it would never fly.

The second thing the CIA did well is they realized that it was not enough to have this third-party group out there in all the technology sectors. They also needed a counterpart group inside the agency. And so what Directorate of Science & Technology decided to do is they set up just such a group. They put 13 top-notch, very smart senior officers all from different directorates, each of whom had years of experience. They knew where all of the internal challenges were and how to respect the people in the building. They translated what used to be called requirements into broad problem sets in a way that we could find commercial analogs to match the needs. Then they championed the technology in the building, while identifying the right people who actually needed this technology. The CIA has never really had problems finding out where the technology is. The bigger challenge has been getting it into the mission. And all the technology in the world isn’t going to make any difference unless the mission users, and the people who provide the intelligence, will use it.

The third thing they did was design In-Q-Tel to be an independent organization with its own board of trustees—a group that could be trusted as an honest broker. This separation was critical. I think the people who established In-Q-Tel realized that it had to have independence in order to make decisions that the agency might not initially want. If you have to get permission from the system that you’re trying to change, it is extremely difficult to change the system. This proved very fortunate, as many early programs had strong support in certain sectors, but didn’t have universal support. Some of them were considered, quite frankly, oddball.

For example, one of our investments, Graviton (a wireless sensor network company), had IT elements in it, but it didn’t appear to be a natural investment for In-Q-Tel or the CIA. Post–9/11, given the requirements of homeland defense and the need for sensor grids and tools that monitor the environment, it now looks like a really smart thing to do. But if we’d had to build a consensus, it would have been just too slow and too cumbersome.

Finally, the agency was also very smart in that it recognized the need for procurement personnel. They picked a couple of their top procurement folks to work with In-Q-Tel and their general counsel’s office and constructed vehicles for In-Q-Tel to use that felt like commercial documents. That was essential, because once these measures were in place, commercial companies could engage with us in things that were familiar, like licenses, equity vehicles, licensing, and royalty arrangements while still protecting the government’s interests through certain rights, making sure there would [be] good practices in place and they were getting good value for their money—with that in place, we were good to go.

We’re designed to be a bit unorthodox, and the leadership seems pleased. George Tenet said, “Look! I’m surrounded by people in government. I’m surrounded by great intelligence people. I don’t need another organization filled with the same stuff. I need an organization dedicated to a new way of thinking. And we’ll combine In-Q-Tel’s resources with resources in the agency, working in tandem as partners.” So overall it’s worked out very well. But if any one of those things hadn’t occurred, I don’t think we’d be successful at all.

Journal of Homeland Security: Do you think it helped having an aggressive hands-on DCI [Director of Central Intelligence]?

Louie: I think it helped having a DCI who was mission-focused rather than technically focused. He realized that the problem wasn’t the technology, but rather the problem was “How do you solve the mission?” He has a pretty clear set of problems. He has a finite number of experts in all sectors of his agency. There’s a huge, growing demand for intelligence everywhere, and you can’t simply add people. Talented analysts take years and years to hone their skills.

So he figured out what he had to do was [to] better leverage what he had. Yes, the agency would bring in new people and train them up, but for the short term, the agency needed to leverage the people already in the system. And one of the most effective tools for leveraging his existing talent is technology. Using technology and ample private expertise allows his analysts to do the things that human beings do really, really well and lets the computers do all the drudge work.

And Director Tenet handled the situation very well. He wasn’t the kind of person that would get on his staff and say, “Here’s the new technology I read about in PC Magazine or I saw demonstrated in some research forum.” No, George said, “Get the job done, and I’m going to measure you by how you affect the mission. And at the end of five years I’m going to look back and say, ‘What did you deliver [to] me for the money we provided [to] you that affected the mission?’” And that’s all that counts for him—the mission.

That’s what the DCI is concerned about—how many lives have you saved, how many bad guys have you caught, how much did you improve the role of intelligence? And those are the right metrics. Not measuring the widgets.

Journal of Homeland Security: Did the private sector have any misgivings or preconceived notions about In-Q-Tel that you had to overcome?

Louie: It was a little bit easier than I thought it was going to be. Early on, many didn’t think it was going to work. People felt there was an unbridgeable disconnect between Silicon Valley and the CIA. People imagined a group of West Coasters from places like Berkeley walking into the CIA and telling them what to do. It didn’t seem like it was going to work.

But venture capitalists were very interested and curious from the beginning. We started getting calls immediately after word got out about In-Q-Tel, from the top-tier companies, asking, “Well, what’s this all about?” So we immediately initiated a dialog with the major venture capitalists, and this greatly increased communication. What the VCs [venture capitalists] soon realized is that In-Q-Tel could aid them in identifying good investments. The top-tier, billion-dollar venture capitalist firms might receive anywhere from 500 [to] 2,000 business plans a year. A good venture company can vet that list down to about 50 good potential investments, and then further down to about 20 actual investments. But which one of the 20 are you going to do? A couple of the really smart venture capitalists decided, “Well, why don’t we just call up In-Q-Tel? By all appearances, this company is offering the best [information security] product. But who would know best about what a really good [information security] product is? If we call In-Q-Tel, they’re going to come down and look at the technology, consult all of their technical experts, and they will either say they want to invest or they do not. And if they don’t want to make an investment, we’ll ask them why. If they say that they’ve seen better, maybe we shouldn’t put our money behind that particular company either.” So the venture funds began to use us as a vetting mechanism, to review their portfolios and understand where the agency placed value.

On the flip side, the companies loved us too. Since the VCs were coming to us, they realized if they could get to us first, we might be able to introduce them to other venture capitalists and promote their product. More importantly, people—at least the entrepreneurs—perceived that the CIA was looking to tackle the really difficult 21st-century IT problems with technology that would have significant value in the future. And if this new technology could solve the CIA’s problems, it could also probably be applied to the Fortune 100’s problems. To the companies, the real value of working with In-Q-Tel was the top-notch challenges the agency presented, not the funding. As a result, In-Q-Tel became for entrepreneurs the “Good Housekeeping seal of approval.”

Journal of Homeland Security: Why is it do you think that U.S. intelligence agencies, which benefit so directly from technology, got so far behind the power curve that a company like In-Q-Tel became necessary?

Louie: Well if you talk to Bill Perry and others who were involved in the “glory days” of the agency and technology, they would suggest that the agency wasn’t behind when In-Q-Tel was being formed. The fact is the CIA is still very much ahead of the private sector. But there is clearly activity in the private sector today that has taken on a life of its own. This activity was not government led, but instead came from the commercial side. Furthermore, the market for many new products was bigger on the commercial side than it was on the government side. For example, a young technical person who develops a great idea, instead of going to a defense contractor as he might have in the past, would instead launch a startup. So we’ve seen a rerouting of the talent from traditional providers of technology IT to the fast-moving startup companies.

It’s not that the traditional contractors weren’t doing great work, but there was a whole level of activity that, until recently, we didn’t have access to. Back in ’99 at the height of the bubble, what we needed was a new mechanism. We needed to do something above and beyond what we’re already doing and close the gap. Today people say, “Yes, the agency obviously needed to explore the IT community.” But in 1999, it wasn’t that obvious. The agency has to stay ahead of the curve.

Of course, there was a gap between what we would call basic research and the technology that actually got into the mission and into people’s hands. And they’re just too expensive. Microsoft for example, spends billions of dollars on every upgrade to their operating systems. That’s a lot of money to ask the taxpayer to pay.

And if you were an entrepreneur, and you had a choice between a cost-plus contract for the government or creating a product that has value to the commercial market with hundreds of millions of dollars in market-cap valuation, it’s obvious which way those entrepreneurs would go. So I think the market has changed. So Bill Perry, Norm Augustine, and all the other board members realized we needed to update our model to something that’s more relevant to today’s times.

Journal of Homeland Security: Do you believe [that] In-Q-Tel’s relationship with venture capitalists and private-sector companies will be affected by the downward turn in the economy?

Louie: We believe [that] In-Q-Tel can be just as valuable a resource in a downturn as in a booming economy. If you talk to most technology companies and investors, there are many groups today chasing the government market and saying, “We’re going to be the post–9/11 homeland defense company.” The Valley’s smart money is not chasing back, but they realize the government is a reasonable sector to go after. It’s a good “vertical.” In this rough time, when there are very few dollars being spent by venture capitalists, if government really muscles up spending in homeland security, then it consequently becomes an attractive target.

So as a result of the financial drought, we’re actually getting more and more venture funds asking us to not just to vet products, but asking us, “What are the things are you looking for?” “Where do we see the government heading towards in terms of technology?” So it’s actually helped us. During the inflationary period of investment in the 1990s, anyone with a dot-com in their company was able to find money. Today, the investment world has rediscovered self-discipline. Today, people are only going to invest in great technology, great management teams, and good solid markets. That’s the old way of investing and quite frankly that’s the best way. By investing in solid concepts, you get solid organizations that can stand the test of time. Even more important, by sharing the total costs you will produce a commercial market around that technology. As a result it will be much cheaper than any point solution designed for government, by government, and only for government.

Journal of Homeland Security: So you actually see the downturn as an advantage, harnessing the additional attention and coming out of this situation stronger than before?

Louie: I think In-Q-Tel is demonstrating that it is possible to engage the commercial world, academia, and the national labs—all these different, disparate groups regardless of market conditions. And then, not only do we produce good ideas and good technologies, but we can also convert them into products and services that benefit markets outside the government sector. We can go back to our commercial lives and know we’ve left our mark on government. We came here to do this because it was something we saw as important, and In-Q-Tel’s success in government will eventually show just how much we’ve had an impact on the culture.

Journal of Homeland Security: Do you see any other models coming along that might replace venture capitalism?

Louie: I think we may see some hybrid models. There will always be venture capital, just like there will always be venture investing. Remember, corporate venture capital is something that is still in the process of maturing. The main reason for that is they cannot decide if they should be investing for strategy or investing for rate of return.

One of the things the private sector might learn from In-Q-Tel is that venture capital is only one of the things we do. Our measurement is not just the return on investments we make in venture capital, but really the effect we have strategically on the organization. So unlike the large strategic venture capital groups inside organizations, where you have two of three VCs who often do deals but cannot link up operating components, In-Q-Tel has two thirds of its people focused on solution transfer and technology and assessment technology nurturing. Only one-third of our activities are focused on the venture capital activity. I think a lot of the corporate organizations are going to move towards our model, versus the old model—throwing money where all the other money goes. Our strategy is to instead locate the technology, locate the strategic needs, and then invest in a way that attracts and leverages the other financial players.

Journal of Homeland Security: Do you have any idea how In-Q-Tel might improve its chances of serving technological developments in legacy systems?

Louie: Yes. Whether In-Q-Tel does it by itself, or with other organizations, what is really important is to realize that there is a service component to the technology, particularly around legacy systems. What In-Q-Tel has to do, talking specifically about the CIA for the moment, is to combine the best service providers that are designing better systems with more processors. What we want to deliver is “your day’s work process.”

If you introduce new technology, that’s terrific. But if you just graft it onto an old work process, you’re not really leveraging technology. You’re not really maximizing the people that you’ve got. It’s important to look at it as a higher system. At In-Q-Tel, we’re looking at both internal activities and traditional providers of technology such as defense contractors and the big IT providers. And we’re arguing that those are all just resources. They have a lot of parts and pieces. Whether a company uses its own internal CIO organization, or a combination of outside services, it needs to architect a holistic view of how to change today’s work products and processes. That’s what needs to get done.

In-Q-Tel cannot do it by itself. Even though we can affect tactically individual units within the agency, you still need a systems approach, and a systems approach means it doesn’t matter where a piece of it comes. A piece of it might come from SAIC, a piece of it might come from Lockheed, a piece of it might come from academia—but what matters is how you bring all of those pieces together to give you an ability you didn’t have before. That requires systems engineering that requires workflow analysis and goes way beyond just making technology bets.

Journal of Homeland Security: On a bit of tangent, it sounds like what you’re saying is investing in strategy is the best long-term path to success. However, it seems like today most people are more interested in immediate returns on their investments. Have you had a hard time convincing people of the need to look not just at short-term interests, but 5, 10, 20 years down the road?

Louie: I call that the “total cost solution” return. And that’s different from a financial plan. A financial planner’s goal is to make a bet, get in and out, and to maximize that gain. That’s a lot different from corporate investing. In corporate investing, investors ask, “What is the real return on the investment for the total organization?” And once they adopt this strategy, where their investments fill gaps or move strategy along, then they understand [that] metrics cannot be completed on a quarter-by-quarter basis.

Today’s market, in the post-Enron and post-Worldcom era, punishes spiky rates of return. Those companies are demonstrating a failed strategy. It doesn’t matter if you have two quarters of great returns if the following quarter you destroy gains from the past two years. I think the American investor is refocusing on the long term and good corporate governance, which requires good strategy and an understanding of consistent rates of return. So I’m in total agreement with you. I will say that at the same time, however, you have to make sure that your company makes it to the end, so you have to pay attention to both the long term and the bubbles.

Journal of Homeland Security: Do you think this is a principle that is being taught in business schools today to the young IT managers, the importance of long-term planning?

Louie: Slowly. The problem is that historically the IT discipline has been considered “old temple” and makes no effort at understanding the “business temple.” Not enough work has been done in academia to analyze how those two worlds interact. Business people need to understand operations management, operations research, as well as the technology side in order to create maximum leverage.

Now McKinsey & Co. put out a great report on American productivity, and they had some pieces about how technology impacted American productivity. The reality was that most productive sectors did spend a lot on IT, but many of the least productive sectors also spent a lot in IT. The primary difference was how they implement the IT. Wal-Mart is a shining example of how a company, by changing its workflow processes and the supply chain and thinking from end to end can revolutionize its business and beat its competition. IT played a role in this, but it played a role alongside all their business transfers. And we have to do that now in government on the homeland defense side. Today, we are witnessing a near–real time responsive environment, which is very different than during the Cold War. There is a need to blend these two disciplines—productivity and technology—together to come up with a new model.

Journal of Homeland Security: On the international front, has In-Q-Tel done any work with European or Asian firms, or is it strictly an American firm?

Louie: In-Q-Tel is strictly focused on the United States, but we do get proposals from companies in other countries.

Some European countries have expressed interest in this model as well. In some respects, European countries have an advantage because they have already been doing a lot of privatization work and are therefore more comfortable with this private-public partnership than the U.S. is. The U.S. has historically tried to separate the public and private sectors. But privatization activities that took place in the 1990s in Europe have resulted in Europe’s increased openness to these kinds of relationships.

Journal of Homeland Security: Is our educational system producing the right kinds of people to be successful in the environment you’ve been discussing, and against this international competition? For example, are high schools and colleges producing individuals who are technologically savvy who can contribute to American intelligence efforts?

Louie: I would say the cream of the crop is still the cream of the crop. I’ll take America’s cream-of-the-crop students over the competition. But the challenge is not the top 10 or 5 percent, but the rest of the talent pool. We cannot afford what is becoming an increasingly large gap in skill sets among students, so much so that we create a new class in society.

This isn’t about a technology gap. Rather, it’s about our way of thinking, and how we as a society leverage information. We need to make sure that we pull everybody along. Take a look at a country like South Korea, for example. They are totally wired and it’s having a noticeable effect on their culture when you wire up an entire population with broadband, whether you are rich or you’re poor. Some countries are completely rebuilding themselves. China is rewiring its entire metropolitan areas. In their case it’s actually easier, as they didn’t have any infrastructure to protect from the beginning. So we need to develop innovative educational solutions, because our kids are our next line of defense, and we cannot afford to leave them vulnerable.

Journal of Homeland Security: Do you think there are disconnects between the federal and state governments as to how to address this gap or problem?

Louie: In some ways, I think the fact that the United States uses fifty different approaches to education is a strength. The federal government is fairly irrelevant in terms of education funding. Eight or nine percent of the education budget comes from the Federal government. State and local forces drive decision-making.

And because the states are competitive with one another, they are willing to innovate and experiment. We’re a competitive society and this plays to our strength. Nevertheless, we need to prioritize the education efforts more than we have, and I think we’ve seen in the past few years significant steps towards doing so. In the late 80s and early 90s, people were very pessimistic. Everyone thought the U.S. educational system would completely collapse. We realized that we were in big trouble. We’re not out of it yet. We have a long ways to go. But the states are really on top of the problem. Ask any governor what his or her top two priorities are and he’ll say education is one of them.

Journal of Homeland Security: Looking ahead, what do you perceive as some of the major technology breakthroughs as they relate to your business?

Louie: I thing there are some interesting things happening in the fusion of technologies. Short-term, [in the] near future, I think you’ll see more developments in knowledge management systems, peer-to-peer architectures, and distributed networks. These will allow total connectivity—having the ability to go out and effectively mine a network’s information in a smart, robust kind of way. Take the search engine Google. Five years ago, the concept of Google would have been amazing. Who would have believed in 1995 that we would develop this tool where you can type in any question you want, and you’ll get all the information all over the world that is relevant to that subject? That’s the kind of state where we are today.

Tomorrow, before you even ask your question, your system, your client, will know who you are. Your e-mail will know who you are, your calendar will tell you what you’re interested in, news programs will be tailored to your interests. You will have your own personal network of people accessed by your own electronic profile. Information will be prearranged and presorted, distributed to you in a way that you can comprehend. Work that now may take weeks will only take minutes. And many of these capabilities will be performed not off a computer but off something far more portable, like on your belt. It is going to fundamentally change the way we think of information. It means personal empowerment and network awareness that we have never before leveraged.

As for the long term, there will be lots of interesting things happening. In particular, I see a merging between biosciences, computing sciences, and the physical sciences. And I think as the goals of these different fields begin to intersect, you’re going to see some really unbelievable technologies that will change market trends as well.

Journal of Homeland Security: Do you see these changes occurring more rapidly now than in the past?

Louie: I think there will be some critical breaking points, which will create spurts in innovation. But I’m not of the belief that things are going to change so rapidly and so fast that in the next 10 years, you’re going to create what once took 30 years of hard work. But because technologies are being brought together and fused in neat ways, I do think technologies will morph more quickly than historical patterns, even though the technologies themselves are being developed at about the same pace.

We’re living in interesting times. What does it mean when two-thirds of the world will be hooked together? You can touch anyone that you want and get information to anyone who needs it. You can become part of a virtual community in a way that until today was not possible. That’s going to fundamentally shift how we do politics, how we do business, how we exchange information, and change the value of information. And what you’re going to start seeing is the value of the network becoming more valuable than the value of the individual pieces.

Journal of Homeland Security: Aren’t there certain perils involved with this? For example, a small non-state actor turning around and inflicting significant damage on a large nation-state like the U.S.?

Louie: There are dangers. It’s always a race between the good guys and the bad guys. Even if you go back to an era where bow and arrows and crossbows were the dominant form of warfare, you see different groups taking advantage of the gaps that exist between groups. But all of this underlines the importance of intelligence. It’s our job to identify gaps in technology and react to the gaps before they go off and kill us. So I think if anything, the intelligence services, the defense establishment, and government are focused on getting technology savvy now. Because those gaps can be exploited, and if they can be exploited in the wrong kinds of ways, it could be a disaster.