Maryland's many government contractors could have a big role in creating cybersecurity startups - Technical.ly Baltimore

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Oct. 25, 2017 12:01 pm

Maryland’s many government contractors could have a big role in creating cybersecurity startups

The area's abundance of talent working around government-center services companies is often cited as an asset. Some cyber leaders see an opportunity to spin out startups directly from those companies.

Drew Cohen (right) with the team from Zuul, a MasterPeace spinout.

(Photo by Stephen Babcock)

With government institutions like the NSA and the talent that follows as a result, Maryland holds lots of influence in the cybersecurity world. With those government agencies come plenty of contractors and other services businesses that only increase the cyber footprint. It’s a big reason that the state is looking to position itself as a hub of cybersecurity.

Columbia-based Masterpeace Solutions is one such example. But lately, CEO Drew Cohen is getting more attention for new startups than new contracts. To fulfill the region’s much-talked-about potential, Cohen sees a bigger opportunity in encouraging those talented workers to create new companies that build software products.

“One of the things that the region has going for it is that it’s got technologists, software people and cybersecurity people that are kind of an envy, frankly, of a lot of communities worldwide, but those people end up in services job that are linearly scaled,” he said. Cohen was speaking on a panel at the CyberMaryland Conference in Baltimore earlier this month that was moderated by this reporter.

Services companies require more people to grow. “When you make software…scale is built in.” Cohen said. And when it comes to the products those smaller firms create, big business success can follow.

It’s why MasterPeace created an accelerator within its company to spin out new startups, complete with open office space for the teams to work within the company’s offices in a nondescript building on Columbia Gateway Drive. Masterpeace’s Launchpad are looking to provide an environment where employees can commercialize new technologies. In doing so Cohen said he looks to identify employees who can be founders, even if it means that they will eventually leave. He acknowledges that “there is a special kind of person that has the kind of passion and drive and risk-taking to start a product company, because it’s hard,” but already sees such leaders emerging from his company.

It’s an effort that has the attention of Ron Gula. The former CEO of Columbia-based Tenable Network Security had a hand in one of Maryland’s biggest cybersecurity business splashes with a record $250 million funding round in 2015. Gula is now helming the investment firm Gula Tech Adventures with his wife, Cyndi Gula, as he seeks out the next generation of high-growth companies.

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It’s a pattern that may conjure thoughts of Silicon Valley and the startup culture that propelled it to many, many splashes. The West Coast tech center came to mind for U.S. Department of Homeland Security Cybersecurity Division Director Douglas Maughan, when considering the question of whether Maryland can support “the next ten Tenables,” as Gula often phrases it.

“If I go to the Valley they certainly can, but they’re also willing to see companies start and fail very quickly. That’s always hard for people. So you’ve got to be able to get into that culture and we’re not there yet,” he said.

While Gula and others went directly from government to becoming an entrepreneur that was selling into the commercial market, Gula sees a role for the contracting companies that often sit between the government and private sector. With 800-900 services companies, he said, even five percent of those spinning out a startup would mean lots of new product companies.

“If I had to do one thing, I’d go to every services company…and just try to incentivize them to spin out a company,” he said. That’s why he brings up Cohen’s efforts i in public appearances, and ultimately hopes the model gets copied.

“It’s the right way to cultivate talent in this region,” Gula said.

While the potential for failure remains with any startup, the spinout companies that result may be able to take some of the values that helped the services companies build sustainable businesses. As with any early-stage, high-growth discussion, the question of funding inevitably arose during this month’s panel. But instead of talk of finding immediate funding, the money discussion began when Cohen said he encouraged companies to grow on revenue, rather than raising outside capital. That requires a different mindset from using angel or seed investment to build a product.

“You’ve got to go out and get customers first. You’ve got to sell first and put a lot of value in sales,” Cohen said. Early sales can be used to fund the company, then investment would follow for the purpose of accelerating the company’s growth.

The spinout model can also provide some of that funding upfront.  That’s what happened with FourV. The company, based in Spark Baltimore, was spun out of the Syracuse Research Corporation (SRC) and started with what was essentially a Series A check in hand for initial hiring and other needs. Along with an experienced team, there was also a business structure in place early on.

“Coming out of another company gave us some of the general trappings you would find in a larger firm,” said FourV Vice President Brit Wanick, such as healthcare plans, and administrative functions. “We didn’t have to kind of bootstrap that from scratch.”

That initial jumpstart helped provide a basis from which to tackle challenges that any startup would face in fitting a product to the market and seeking out customers, Wanick said.

The government is also finding a role in helping to provide funding for companies. At his federal government post in the Department of Homeland Security, Maughan oversees an effort to provide funding to companies to the tune of up to $800,000.

“From a startup’s perspective, it’s an alternative to the venture money,” he said, adding that DHS has funded 24 companies.

While the government isn’t directly forming the companies, it’s a way to help technology develop that can be used more widely. The Department seeks out companies that are developing products for the commercial sector, and can also be adjusted to what the federal government needs.

“It’s really about helping the startup get in somebody’s front door. Sometimes it’s the government. Sometimes it’s not,” Maughan said.

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