In the late 1990s, the Central Intelligence Agency faced an existential problem. The technologies reshaping the world—the internet, mobile computing, advanced sensors—were emerging from Silicon Valley garages, not from government contractors. The intelligence community was falling behind, and traditional procurement couldn't keep up with the pace of commercial innovation.
The solution was radical: create a nonprofit venture capital firm, give it CIA money but private-sector freedom, and let it invest in startups whose technologies could serve national security. In-Q-Tel was born in 1999, and it would transform not just how the U.S. intelligence community acquired technology, but how governments worldwide think about strategic innovation investment.
In-Q-Tel: The Model for Mission-Driven Venture Capital
In-Q-Tel operates at the intersection of spy agencies and startups—a combination that seemed impossible before it was invented. The organization makes equity investments in commercial technology companies, takes board observer seats, and works to ensure the technologies developed serve intelligence community needs. But it does this while maintaining the speed, flexibility, and deal-sourcing networks of a top-tier venture firm.
Work Programs
Companies receive not just capital but structured engagement with intelligence agencies, accelerating product-market fit for classified applications.
Dual Benefit
In-Q-Tel invests in companies that serve both government and commercial markets—amplifying returns and avoiding sole-source dependency.
Speed
Deals close in weeks, not years. The organization operates with commercial velocity while serving government missions.
Ecosystem Access
Portfolio companies gain access to the intelligence community's requirements, while agencies gain early visibility into emerging technologies.
The Work Program Innovation
What truly distinguishes In-Q-Tel isn't just that it makes investments—many government entities do that. It's the "work program" model that creates transformational value. When In-Q-Tel invests in a company, the investment comes bundled with structured engagement: intelligence professionals work directly with the startup's engineers to ensure the technology meets classified requirements.
This creates a flywheel effect. Startups gain access to requirements they couldn't otherwise learn about—and wouldn't know to optimize for. Agencies gain products tailored to their actual needs. And the investment itself often attracts additional private capital, as other VCs recognize that In-Q-Tel backing means a company has navigated security clearance processes and proven its technology in demanding environments.
"In-Q-Tel doesn't just write checks. It creates a structured pathway for commercial innovation to reach national security applications—and that pathway is worth more than the capital."
Former In-Q-Tel Portfolio Company CEOPortfolio Successes
The track record speaks for itself. In-Q-Tel invested in Palantir before it became a $50 billion defense technology giant. It backed Keyhole, which became Google Earth. It funded Recorded Future, FireEye, and dozens of other companies that now form the backbone of America's cyber defense capabilities. These weren't lucky bets—they were the result of systematic engagement with companies whose technologies addressed known intelligence requirements.
The In-Q-Tel model's direct applicability to the U.S.-Israel Alliance cannot be overstated. A bilateral version could create "work programs" that connect Israeli deep-tech startups with American defense requirements—and vice versa. The structure exists. The playbook is proven. What's needed is bilateral adaptation.
Yozma: How $100 Million Created a Nation of Startups
If In-Q-Tel shows how government can invest in startups, Israel's Yozma program shows how government can create an entire venture capital industry. Launched in 1993 with just $100 million in government capital, Yozma is widely regarded as the most successful government venture catalysis program in history—the progenitor of the "Startup Nation" phenomenon.
The genius of Yozma was asymmetric incentives. The government provided 40% of each fund's capital but accepted only a proportional share of losses. Private investors, meanwhile, had an option to buy out the government's stake at cost plus modest interest—keeping all the upside if the fund succeeded. This heads-I-win-tails-government-loses structure attracted foreign venture capital to Israel for the first time.
Asymmetric Risk, Transformational Returns
Ten hybrid funds launched under Yozma, each pairing Israeli fund managers with experienced foreign VCs who brought expertise and networks. The government absorbed first losses up to its contribution. If funds succeeded, private partners could buy out the government's stake at favorable terms.
The result? All ten funds succeeded. Most privatized within five years as managers exercised their buyout options. The government earned positive returns on its capital while catalyzing an industry that now deploys over $10 billion annually. A 100x multiplier on ecosystem development.
Critical Success Factors
Yozma worked because it was designed to succeed itself out of existence. The five-year sunset created urgency. The buyout option ensured private ownership would eventually dominate. The requirement for foreign VC partners ensured knowledge transfer. Israel didn't just get capital—it got capability.
This matters for the U.S.-Israel Alliance because it demonstrates how government capital can bootstrap an ecosystem without creating permanent dependency. A bilateral Yozma could catalyze new cross-border venture funds while building toward full private sustainability.
"We didn't just invest in companies. We invested in an ecosystem—the fund managers, the mentors, the service providers. Twenty years later, that ecosystem runs itself."
Yigal Erlich, Yozma Program FounderNATO Innovation Fund: Allies Investing Together
In 2022, NATO took a step that would have seemed unthinkable a decade earlier: it launched the world's first multi-sovereign venture capital fund. The NATO Innovation Fund (NIF) pools €1 billion from 24 member nations to invest in dual-use technology startups across the alliance.
The significance extends beyond the capital itself. For the first time, allied nations created a mechanism for collective technology investment—a recognition that technological advantage in the 21st century may matter more than troop counts. The fund focuses on AI, space technologies, biotechnology, and new materials—precisely the domains where innovation happens in startups, not defense primes.
How NIF Works
The NATO Innovation Fund operates as a €1 billion venture capital fund with an unusually long 15-year life—recognizing that deep tech investments require patient capital. Twenty-four NATO members serve as limited partners, with contributions roughly proportional to GDP. An independent management team makes investment decisions, insulated from political interference.
The fund invests in companies incorporated in participating NATO countries, with preference for dual-use technologies that serve both commercial and defense applications. Returns are shared among member nations, creating aligned incentives for technology transfer and commercialization across the alliance.
DIANA: The Accelerator Network
Complementing NIF is DIANA—the Defence Innovation Accelerator for the North Atlantic. While NIF provides capital, DIANA provides infrastructure: a network of test centers and accelerator sites across the alliance where startups can access military testing facilities, work on classified problems, and accelerate their path to defense applications.
The combination is powerful. DIANA identifies and develops promising technologies. NIF provides capital for scaling. Together, they create a pipeline from early-stage innovation to operational capability—exactly the model the U.S.-Israel Alliance should emulate.
What Took So Long—And Why Bilateral Is Faster
NIF took years to negotiate. Twenty-four nations with different legal systems, security classifications, and investment regulations had to agree on structure, governance, and information sharing. The result, while groundbreaking, represents the lowest common denominator that all parties could accept.
A bilateral U.S.-Israel fund can move faster and go deeper. Two nations. Existing security sharing agreements. Decades of established trust. The bureaucratic overhead that slowed NATO simply doesn't apply. What NIF proves is that multi-sovereign investment is possible. What the Alliance can demonstrate is that bilateral investment is optimal.
Five Eyes and Allied Defense Technology Cooperation
The deepest technology sharing relationships aren't investment funds—they're intelligence and defense alliances built on decades of operational trust. The Five Eyes partnership (US, UK, Australia, Canada, New Zealand) represents the gold standard: partners who share their most sensitive intelligence and coordinate their most classified technology programs.
Israel isn't a Five Eyes member, but its technology sharing relationship with the United States may be deeper in practical terms. Israeli innovations in missile defense, cybersecurity, and unmanned systems have been operationally integrated with U.S. forces for decades. The question isn't whether the trust exists—it's whether the investment mechanisms match the strategic relationship.
AUKUS Pillar II: Technology Beyond Submarines
While the 2021 AUKUS agreement made headlines for nuclear submarine transfers, its "Pillar II" may be more consequential. The US, UK, and Australia committed to deep technology cooperation in artificial intelligence, quantum computing, hypersonic weapons, electronic warfare, and cyber capabilities—areas where innovation happens faster than traditional procurement can adapt.
Shared R&D
Joint research programs with common requirements, shared funding, and collaborative development.
Industrial Integration
Defense industrial bases increasingly interoperable, with cross-border supply chains and production.
Talent Exchange
Scientists and engineers rotate between partner institutions, building networks and transferring knowledge.
Procurement Alignment
Coordinated acquisition strategies that create larger markets for jointly developed technologies.
The U.S.-UK Model
The closest template for deep bilateral defense technology cooperation may be the U.S.-UK relationship. The F-35 Joint Strike Fighter program shares production across both countries. DSTL (UK's defense science agency) and DARPA collaborate on advanced research. The two nations share their most sensitive intelligence on a daily basis.
What's missing is a bilateral investment vehicle. Despite deep operational integration, the U.S. and UK lack a dedicated fund for co-investing in defense technology startups. The proposed U.S.-Israel Alliance could become the template that eventually extends to other close allies.
Synthesis: Building the Ideal Model
Each model we've examined offers essential lessons. In-Q-Tel shows how to connect startups with national security requirements through work programs. Yozma demonstrates how to catalyze private investment with asymmetric government risk-sharing. NATO NIF proves that multi-sovereign investment is achievable. AUKUS shows how deep allies can integrate technology development across borders.
The U.S.-Israel Technology Alliance has an opportunity to synthesize these approaches into something greater than any individual model.
Best Practices for the U.S.-Israel Alliance
From In-Q-Tel: Work programs that connect startups with defense requirements. Security-cleared investment professionals. Speed and flexibility of commercial venture capital. Dual-use investment thesis serving both government and commercial markets.
From Yozma: Asymmetric risk-sharing to attract private capital. Sunset provisions to prevent permanent government involvement. Requirements for private sector expertise. Ecosystem development focus beyond individual investments.
From NATO NIF: Multi-sovereign governance with professional management. Long-term fund life appropriate for deep tech. Integrated accelerator network. Information sharing protocols for classified collaboration.
From AUKUS: Technology domains prioritized by strategic importance. Industrial base integration. Talent exchange and knowledge transfer. Procurement coordination to create larger markets.
The Bilateral Advantage
A bilateral U.S.-Israel fund can move faster, go deeper, and achieve more than any of these models individually. Two nations with aligned interests. Existing security sharing agreements. Complementary innovation ecosystems—American scale and Israeli agility. Decades of demonstrated trust.
The question isn't whether the model can work. The question is how to structure it for maximum impact. That requires understanding not just successful precedents, but the specific mechanisms needed to deploy billions in bilateral technology investment. That's the subject of our next chapter.
"The best bilateral relationship isn't just about what we share—it's about what we create together that neither could build alone."
Former Director, U.S.-Israel Science and Technology Commission