Dcode recently launched Dcode Capital as an “invitation-only network of angel investors, VCs, and technology and government legends” to invest in larger rounds of funding for tech companies serving the federal government. For now, those companies are ones that have previously participated in the Dcode accelerator program.
The idea for a venture capital network under the Dcode brand came after having close to 100 companies go through the accelerator program, and many returning after the fact, asking Dcode to invest in their next funding rounds. Dcode was originally founded to help firms connect with government business but not necessarily with investors. It has since expanded to take on new offerings, like technology training for federal employees.
CEO Meagan Metzger told FedScoop “the venture capital market still woefully doesn’t understand the government.”
“Sometimes getting a VC to put capital into a company that will really exponentially help them expand in this market can be a challenge,” Metzger said.
It also comes as the federal government itself has become “obsessed with venture,” she said, pointing to organizations like the Air Force’s AFVentures, which issues Small Business Innovation Research funds as small capital injections into startups with promising ideas.
Dcode Capital is yet another opportunity to turn bright American startups toward challenging issues, like national security. “We have an opportunity, I think, to influence both a company’s growth and making sure better tech really gets into the market and from a national security standpoint, where if we’re able to provide capital to companies that can do well in this market, they’re going to be less likely to go to Chinese investors and things like that that will prevent them from being able to work with the government in the future.”
Such a concept is especially critical at a time when small businesses may be feeling the economic crunch brought on by the coronavirus pandemic and be looking for a lifeline to keep themselves afloat, Metzger said, hoping to sway American startups to resist seeking foreign investments, which may preclude them from future business with the U.S. government.
This point was recently echoed by Ellen Lord, undersecretary of Defense for acquisition and sustainment, who said: “It’s critically important that we understand that during this crisis the [Defense Industrial Base] is vulnerable to adversarial capital, so we need to ensure companies can stay in business without losing their technology.”
Metzger pointed to the federal government’s ban of DJI drones as an example of what she hopes the new VC arm can help prevent. “When the government is feeling like there are markets that it wants to make sure it doesn’t lose to China — like the drone market, for example, all that investment collapse around DJI and now there’s components and drones that the government just can’t buy because every drone has DJI components — how do we stop that from happening again?”
So far, Dcode Capital has invested $3 million in six companies that it says are “now working with dozens of federal agencies to provide data analytics, artificial intelligence, and IoT capabilities to the government.” Metzger said the network is “stage agnostic,” and will invest in a company of any size. For instance, Dcode Capital participated in a $200 million Series D round for San Francisco-based data visualization company Trifacta, adding a couple million to the company’s funding. On the lower end, checks have been around $25,000, Metzger said.
Dcode wouldn’t name any investors in its network, but Metzger painted a picture of the type of people who currently sit in it: former federal CIOs, former agency heads, former military leaders and other private sector leaders who direct massive portfolios for systems integrators and tech companies.
“We actually know a ton of people that either have left the government or they are former agency heads, for example, or they’re at large systems integrators,” she said. “And they’re passionate about the same mission of better tech for government. Why don’t we create a network of former feds, former bigwigs across this market and when we have an opportunity to invest, we put it out to this government network and say, ‘Would you like an opportunity to also invest in the companies leveraging Dcode’s access?”
The icing on the cake is that by bringing those people together with Dcode, they can also attract larger, “top-tier” commercial VC firms.
“Our last one was with Accel and Sequoia and big names that would be really impossible to get into otherwise,” Metzger said. “And now we can say, ‘Hey, the former secretary for Customs and Border Protection can now invest alongside a tier-one VC.'”