Harpoon Ventures seeks to unlock federal contracts for startups

For years, Silicon Valley corporations have been laser targeted on promoting software program to thousands and thousands of shoppers or making massive gross sales to enterprises. Once they say “enterprise,” they normally imply the 1,000 largest firms on the earth. However maybe the most important enterprise purchaser of all is one which’s typically ignored: the U.S. authorities.

Authorities contracting performs an essential half within the funding thesis of a brand new $120 million fund being introduced this week by San Diego-based Harpoon Ventures. Harpoon is a small VC targeted on early-stage tech startups that may someday search the federal government as a buyer, together with protection companies. “Lars and I had been actually born and bred within the [defense] group,” says William Allen, who’s the cofounder and normal accomplice at Harpoon together with Larsen Jensen. Allen was a Marine and Jensen a Navy Seal earlier than each entered the enterprise world (Allen did a stint at Deloitte and Jensen labored on the VC agency Lightspeed after Stanford Enterprise College). “As junior officers, we actually empathized with the purchasers and with absolutely the finish customers.”

Allen and Jensen, who began Harpoon in 2018 with a $3 million fund, take a novel strategy to get into offers and leverage their expertise. They co-invest with such top-tier VC companies as Sequoia Capital, Andreessen Horowitz (the place Jensen was as soon as a summer season affiliate), and GV (previously referred to as Google Ventures), promising to open up a complete new (federal) market for their portfolio corporations. The truth is, Harpoon helped its first 10 portfolio corporations shut $25 million in authorities offers throughout its first 12 months, serving to it elevate its roughly $60 million 2019 fund. “Our final fund elevate . . . took us all of 5 months,” Allen says. “And it’s not as a result of individuals like our smiling faces, it’s due to the observe document we’ve constructed completely investing with tier ones.”


Why startups who need to promote to Uncle Sam want an skilled information

Understanding the wants of a authorities purchaser is essential, however it’s simply one of many challenges that startups face when they need to promote to the federal government. Traditionally, tech startups have shied away from federal contracting due to lengthy gross sales cycles, contract uncertainty, powerful product necessities, and the arduous work of satisfying compliance and procurement norms. It’s normally simpler for tech startups—particularly these backed by VCs that anticipate speedy development—to deal with industrial markets which have fewer guidelines and sooner gross sales.

Alternatively, the federal authorities is a large purchaser of software program and different know-how—and it has an enormous funds. The Protection Division funds alone is greater than $700 billion (and projected to develop much more). In 2020, the federal authorities paid out $156 billion simply for R&D work, not even completed merchandise. For comparability, the whole U.S. enterprise capital market invested $164 billion in startups final 12 months.

To faucet into that federal cash, tech corporations typically want a powerful champion inside the authorities company they’re attempting to work with. They might additionally want a smart “sherpa”—as Stanford prof Steve Blank places it—to information them via the labyrinthine procurement course of that lastly leads to a contract.

Allen and Jensen are these educated guides. “We will say that is or isn’t the proper time to discuss to that group, and we are able to go a step additional and introduce a potential buyer and perceive how contracting works,” Jensen says, noting that he and Allen may additionally counsel a particular kind of presidency contract that’s designed particularly for buying software program or companies.

Since Harpoon’s inception three years in the past, its founders say they’ve helped startups entry a complete of $496 million from 52 federal contracts throughout eight totally different companies. This, in fact, will increase the valuations of the contracting corporations and may velocity the way in which towards a profitable exit (an IPO or a sale), which in flip enriches the VCs who invested. Their proficiency in facilitating and expediting alternatives inside the federal forms helps to change the notion that pursuing authorities contracts isn’t definitely worth the potential reward.

Enjoying an even bigger recreation

Though the founders make no bones about being as returns-driven as any good enterprise capitalist, there’s an even bigger image round what Harpoon is doing. Jensen and Allen are offering a conduit between the tech sector and the federal government at a vital second for the US. It’s broadly believed that with the rise of China and a belligerent Russia, the U.S. faces a world arguably extra harmful than at any time for the reason that finish of the Chilly Battle. These threats come within the type of synthetic intelligence, autonomous weaponry (drones), cyberwar, and data struggle. There may be additionally a consensus amongst a cadre of overseas coverage analysts and the Silicon Valley startups and traders targeted on protection that the U.S. wants rising know-how developed within the tech sector to counter these threats and anticipate future ones.

“What we are saying is that we now have some entry, and we’re going to leverage that entry to get into among the hottest offers, that are going to return essentially the most cash for the LPs,” Jensen says. “Consequently we’re going to construct a extremely incredible fund—and we are able to all do fairly properly whereas on the similar time performing some good for the nation.”