Booz Allen launches venture capital fund to invest in ‘disruptive technology’ for federal agencies

Booz Allen Hamilton has launched a venture capital arm that will invest $100 million in early-stage businesses with the potential to provide “disruptive technology” to federal agencies.

Booz Allen Ventures operates as a standalone unit and will invest funds on behalf of the federal contracting giant in startups innovating across the areas of defense, artificial intelligence/machine learning, cybersecurity and deep technology.

The launch of the fund comes amid increasing pressure from Congress for federal agencies to work with the U.S. private sector to accelerate AI innovation. A keystone report from the National Security Commission on Artificial Intelligence last year called for the government’s AI research and development budget to be increased to $32 billion per year by 2026.

Booz Allen Ventures has already made investments in Reveal Technology, a visual analytics company that provides real-time 2D mapping and modeling to the Department of Defense, and object labeling company Synthetaic. This follows an investment last year by Booz Allen in AI and machine learning tech company Latent AI.

The VC unit will invest in dual-use commercial technologies, meaning they could have a range of civilian and military applications.  

4 to 6 deals per year

Booz Allen Vice President of Tech Scouting and Ventures Brian MacCarthy told FedScoop the new fund is targeting between four and six deals per year and will eventually aim to hold a portfolio of about 20 to 30 companies.

“We want to make sure they get from seed [round funding] to series B to series C,” MacCarthy told FedScoop.

To identify potential investments, Booz Allen Ventures will rely on an existing 25- to 30-person technology horizon scanning unit that has been operational since 2015. 

The fund’s investment thesis is strategic, meaning it will invest with a view to acquire the underlying competitive advantage of new technology instead of generating cash through the sale of a young company.

Booz Allen hopes that the fund will expand its tech scouting program, which is focused on spotting startups with the potential to provide highly differential and mission-specific applications for federal agencies. 

Deep tech to include quantum, 5G and human performance

Among the four initial investment areas identified by the fund is deep technology, which according to MacCarthy encompasses quantum technology, 5G, human performance and other technologies such as digital twin.

“Some of these areas, or maybe all or those areas, [are] a direct call to action and answer with respect to great power competition,” he told FedScoop. “We’re seeing our near-peer adversaries invest a substantial amount in these capability areas at a nascent stage.”

MacCarthy noted also that the fund has the ability to move fast and that it is also open to co-investment alongside other major VC names.

“Our ideal scenario is that we can act quite quickly,” said MacCarthy, adding that the fund is targeting an execution timeline of about 45 to 60 days for each investment round.

“Something we feel extremely bullish on is when a tier-one venture capital fund – someone who has been well established – [is a co-investor] that takes a significant amount of risk off the diligence process,” he added.

According to VC investment database Crunchbase, Booz Allen partnered with Lockheed Martin’s venture capital arm Lockheed Martin Ventures on its Series A investment in Latent AI, which closed earlier this year.

Booz Allen Chief Technology Officer Susan Penfield added: “Booz Allen Ventures taps into America’s collective ingenuity by investing in software, hardware, and deep-tech startups that offer differentiated applications for the federal sphere, providing our clients access to a next-generation supply chain of breakthroughs critical to America’s national security and economic vitality.” 

The new VC arm will allow Booz Allen “to actively bridge the gap between opportunity and capability and accelerate the services-to-solutions transformation,” MacCarthy said. “As a strategic investor at the intersection of technology and mission, we are uniquely positioned to lead, connect, and convene advanced tech solutions to drive change in government, faster than ever before.”