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Spotlight on Paladin Capital Group and In-Q-Tel: Venture Funds Invest in Electronic Spying Startups

07/22/2013

The string of revelations about America's surveillance apparatus by former National Security Agency contractor Edward Snowden has cast a spotlight on the growing number of American companies involved in electronic spycraft.

It hasn't visibly damped enthusiasm among Silicon Valley investors and military contractors looking for ways to get into a business many see as one of the few growth areas left as U.S. military spending contracts.Some of the country's most influential venture capitalists and former spy chiefs are investing in companies now providing the government with the sweeping electronic spy system and evolving cyberwarfare programs exposed by Mr. Snowden.

More than 80 companies work with the NSA on cybersecurity and surveillance, according to a recent report in the German magazine Der Spiegel that was based on top secret documents provided by Mr. Snowden. They include firms like the one that employed Mr. Snowden as an infrastructure analyst in Hawaii, Booz Allen Hamilton Inc., BAH +1.17% as well as scores of new players.

Last year, venture capitalists pumped about $700 million into security startups, almost a 10th of the estimated market, according to Lawrence Pingree, research director at Gartner Inc., IT -0.21% the U.S. information technology research company.

That's a small part of a broader technology market expected to grow from $67.1 billion this year to more than $93 billion in 2017, he said.

The increases are driven by budget shifts toward cyberwarfare and surveillance and away from ground forces. In his most recent Pentagon budget proposal, President Barack Obama sought cuts in most areas, but is seeking more money for military cyber operations.

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