U.S. House trims 2008 outlay; where’s Uncle Sam’s ROI?
May 21, 2007
By Ken Schachter
The House of Representatives has cut funding for the U.S. Army’s venture capital affiliate from the 2008 defense appropriations bill amid questions about fees and return on investment.
A $10 million allocation to OnPoint Technologies from the U.S. Army was trimmed after Tennessee Rep. Jim Cooper raised objections over management fees—$7.7 million through 41 months, totaling more than 10 percent of the $61.9 million in total federal funding—and the failure to provide a mechanism for Uncle Sam to get a return on its capital.
As the country increasingly relies on up-to-the-minute technology, government agencies are forming venture capital arms to maintain their edge. NASA created Red Planet Capital to bring civilian innovation into the space race, while the CIA has formed In-Q-Tel, to add free-enterprise gadgetry to the spy game.
In an e-mail, Jason Rottenberg, managing director of the Winter Park, Florida-based not-for-profit OnPoint, said the firm has sufficient funding “to fully support our existing portfolio companies.”
As directed by the Army, OnPoint has focused its investments on providing power to the modern gadget-laden soldier. Within its 10-firm portfolio are companies developing: devices that tell soldiers how much power is left in their batteries (PowerPrecise Solutions, Herndon, Virginia); a fast-charge lithium-ion battery (A123 Systems, Boston); fuel-cell power sources (Ultracell, Livermore, California), and thin-film solar technology (Nanosolar, Palo Alto, California).
In 2003, OnPoint was funded with an initial $25 million. The latest $10 million allocation was cut out of the 2008 appropriations bill through an amendment offered by Washington Rep. Adam Smith, who said he was investigating the structure of In-Q-Tel to see if its structure could serve as a model for the Army’s fund.
Though OnPoint might need reform, Rep. Smith said he disagrees with Rep. Cooper’s view that the Army should seek a return from its investment.
“The return on capital is you get a product you can use,” Rep. Smith said.
As of Sept. 30, OnPoint had invested $16.7 million in portfolio companies and paid $7.7 million in advisory fees. OnPoint also set aside $20 million for follow-on investments in existing portfolio companies and held a balance of $18.6 million.
The next step for the defense authorization bill is for the Senate Armed Services Committee to approve a version and send it to the full Senate. Once the Senate passes a version, a conference committee of House and Senate leaders will meet to hammer out a final version to be sent to lawmakers for final passage.
