Q&A: How this Venture Fund wants to help startups with no Government experience navigate Washington
This article was originally posted on NextGov.
Yanev Suissa, a venture capitalist formerly with New Enterprise Associates, wants to invest in startups that could eventually snap up government contracts.
His approach, he admits, is unorthodox: to invest in startups who have so far had nothing to do with the public sector.
A former senior investment officer under the Bush and Obama administrations, Suissa recently founded SineWave Ventures, an early-stage investment fund aiming to back commercial startups and help guide them through marketing to local, state and federal governments.
Suissa talked with Nextgov about why he believes SineWave's model will work. The conversation has been edited for length and clarity.
NG: How did your public sector experience guide your decision to start SineWave?
YS: What I noticed while doing venture was that there are almost no senior government people at any of the venture [firms]. VCs kind of know and admit that they need to deal with [the public sector], but don’t really have anyone who has crossed over between industries to help them out.
What we do is co-invest with the major venture funds in companies that could either provide a tech or service to the public sector, anything that lowers cost, increases performance and has a real impact on general mission and operations. Things like [educational tech], preventative health, areas where there's lots of free capital to help you grow if you know where to look for it, and where you're highly regulated.
We only invest in brilliant private commercial investments that have absolutely nothing to do with the public sector, so that's a little bit ironic. But mostly I find entrepreneurs can't stand the public sector, and don't really want to bother with it. But they know they either have to [to make money] or they know with our help they can.
The reason we built an investment firm rather than a consulting firm is because incentives are misaligned when you’re doing consulting. It's a fee-based model, not an execution-based model. As an investor, my goal is to get you to the goal line. So I regularly say 'No, the public sector has no interest in this.'
When we do think it's the right approach, then we say, 'OK, let's do this for you, but also do it in a way that doesn't distract you from your commercial business, cost you a lot of resources and potentially head you down the wrong path.'
NG: Why are you looking for startups that so far only have a commercial track record?
YS: One major difference in incentives [between the public and private sectors] is that the public sector is not as cost conscious. Usually, when you're effective in the public sector, it's because you're accomplishing something they can't accomplish without you, or because you're increasing the performance of something they're doing. It's very rarely that you're cutting costs, though I do see that happening more.
The public sector is a significant portion of the economy, but the commercial sector is at least two times that if not larger. A startup with limited resources, limited knowledge about the space is very unlikely to engage [with the public sector] unless you understand what they're building and can help them on the commercial side as well.
NG: What makes you think the government will take the risk of contracting with startups that have no public sector track record?
YS: There is some more risk tolerance [today than before], but the government is never going to be a risk-seeking organization. At the same time, they're confronting risk left and right in the tech sphere. Some of the risks come from the fact that the private sector technology is moving faster than them . . . Yes, it's a risk for them whether the technology will work, but it's a risk for them if they don't [try] also.
I do think the government is trying to signal to private sector entities that they would like to engage and participate. The reality of how that plays out is an undetermined story. A really important thing in government is to understand the difference between goals, rhetoric, evangelism and actual implementation. I think the government has done a great job in No. 1, and [I'm] starting to see them increasingly to things in No. 2.
NG: Do you anticipate any pushback from more traditional government contractors?
YS: In any industry, where there is the new guard and the old guard, the old guard is often very dismissive of the new innovative guard. But you constantly see startups becoming the behemoths in the industry.
NG: Are internal federal programs, such as 18F and the U.S. Digital Service, a potential threat to the startups you invest in?
YS: A lot of the entities you've mentioned are building applications to solve a pretty discrete, small problem, and there's a place for the apps within the government. Most VCs don't focus on apps, they focus on larger structural technology. I think [the startups] are going to build things the government uses for the really big problems, the real big capital expenditures.