Silicon Valley has become the gold magnet for individuals and companies just like the California Gold Rush of the mid-1800’s. Instead of gold, the new monetary incentives mean being hired by a company with a decent salary base and ISOs, which can be acquired or, best yet, be an IPO candidate. And the Gold Rush analogy is certainly a propos, only a small fraction of the 49ers found the yellow metal. The rest returned home penniless. The consistent Gold Rush winners were the companies that sold the shovels and their clothing. As I observed, Silicon Valley is populated by the 21st Century version of shovels.
Some shovels are the various incubators and accelerators. Many have programs and panels to educate the newly formed companies in formation, markets, investments, and many other subjects that would have an impact on their growth and development Of course, the benefits derived from such panels can only be measured by the quality of advice.
In an evening where I attended three such sessions, a leading speaker recommended that the startups take advantage of federal government contracts at a San Francisco incubator. From his comments, it seemed to be that the speaker had a vague understanding of how a company can win (or in the Federal jargon, “capture”) those government contractors which have offices in and around Washington, D.C.?
The government contractors employ former government employees in the sector because they have established strong, prior relationships with the governmental divisions. The federal revolving doors still exist. I would say that over 90% of government bids won by government contractors are all staffed by former government employees.
Another characteristic to government contracts is the security clearance requirements. The Snowden incident shed some light on this requisite. One software CEO mentioned to me that he wanted to market the technology to NSA. I mentioned that the strategy is easier said than done.
Security clearances are pre-requisites for virtually all government contracts. Whether one approaches the CIA or the NSA, each requires a totally different security clearance. The security clearance is contracted out to a third party. The average cost is about $15,000, and the duration for the investigation takes about 12 months. The New York Times reported that there were over 2 million issued clearances.
Then there is the RFP. Prior to responding to the RFP, the company must be registered with GSA. Without proper registration, the company cannot entertain any contracts with the Federal government. Assuming that the GSA form has been completed and every “I” doted and “t” crossed, there remains the completion to government RFPs. Virtually all government contractors employ staff whose only purpose is to respond to RFPs. The wording has to be exacting.
One private sector company CEO commented that the company decided to pursue government contracts, it took over a year to get a government contract, and, after all of that effort, the thin margins were disappointing. Imagine how the process would endure for a high security clearance contract. With federal budget restraints, there will be greater challenges.
So, for the Silicon Valley based startup to consider the merits of government contracts, the incubator’s advice can be misleading. And that so-called gold may not be found beyond those hills in and around San Francisco.