One of our customers heard a rumor floating around last week that IBM had funded Unseen.is. Actually, we have absolutely no corporate, government or venture capital financing. We don’t believe it’s possible to serve two masters and for us, the users of our system are the reason we’re here. Unseen.is has to-date been funded from these four sources, in no particular order:
- Profits from another web site we run, Before It’s News. Many of the features we are building will be needed for this and other news web sites. Censorship is going to be a big problem, we’re already seeing the first signs of that with degraded internet performance. It’s also possible that tiered bandwidth service could make it difficult to connect with services that provide privacy. Occasionally you might see references to Before It’s News from Unseen.is, like the email that went out inadvertently last week — we’re cleaning many of those up.
- You. When you buy the premium service, you’re help us to defray costs and get to a positive business cycle sooner. We especially treasure your feedback and good wishes for our team.
- Our team. Everyone working here could make a more working at Big Internet Companies and some of our team members left jobs that pay a lot more to work here. We have of course given them stock in the company. Money is nice to have, but it’s not the main motivation of our team.
- My pocket. I’ve had some successful companies in the past and can’t think of anything better to leave behind for everyone than a secure way to communicate privately.
To date, we’ve spent a bit over $1 million to develop the service. If we had gone the venture capital (VC) route, we would have spent somewhere between $5-10 million to get where we are today. We’d also have picked up some “partners” and while there are definitely good VC’s, we don’t think this kind of business can be built using this kind of money because of potential influence that might be exercised counter to the best interests of our users. This is why we haven’t taken any VC money, not a penny. However, there are other companies trying to build private and secure communications and they have decided to take VC money. Here’s a bit of background on that process.
When you take VC money, you are going down a different path than the one Unseen.is is on. While there are many successful companies that have taken VC money, there is an inherent conflict of interest with the VC’s, their investors and people who have influence over the VC’s and the goals of our company and the users we serve. This isn’t to say anything bad about VC’s or the people who work there, there are definitely some good ones. The group you take your funding from will change your priorities, that’s all.
The first round of VC funding is typically $5-10 million for a business like ours and VC’s almost never invest alone. That’s not enough money for the company to become profitable, and they will never give you enough with your first round, they need to put $25-50 million to work on each deal they are in to make it worth their time. A billion dollar fund will typically invest in only 20 companies because that will keep 2-3 partners busy full time. Most of the large funds have several funds, they raise a new one every few years. If you start with two VC’s and you are successful, you’ll end up with a constellation of them, they all want to put as much of their money to work in a good deal as possible.
VC funds are very lucrative to run. The partner’s money makes up a small fraction of the fund, most of which comes from a list of several hundred pension funds, family offices (wealthy families like the Walton family of Walmart fame, or Michael Dell’s family, for example) and wealthy individuals. Partners typically receive a 2% management fee per year, which can be higher for funds with a great track record, as well as 20% carried interest, which comes from the profits, once the investors are paid back their initial investment. Many successful VC’s have accumulated fortunes of hundreds of millions or even a billion dollars and this money is typically run offshore from places like the Cayman Islands, where financial privacy and favorable tax laws are found. The successful VC’s have made their investors rich, too, and helped to create some of the biggest companies in technology and in many ways, they do serve society in a positive way.
However, for a company that takes their money, VC’s have several places where they exercise control and have control exercised on them. First, the VC’s themselves might have interests in other companies or relationships that they don’t want impaired. This could be companies they are invested in at the same time (e.g. Yahoo and Google or Apple and Google) where there could be conflicts of interest. Even companies related by interlocking directors can exert influence over certain companies. Second, the investors in a fund also exert influence on a VC by threatening to withhold funding from a subsequent venture fund, as an extreme example. This is usually unspoken, but tempers the VC’s behavior. Lastly, some other businesses that a VC has an interest in might be regulated by various entities, who would then have influence over the VC. ”Nice TV station license you’ve got there, it would be a shame to see anything happen to it” comes to mind for those with government licenses. There are many points of leverage.
Here’s an example, a fund that might invest in businesses in our category…In-Q-Tel and this is what it says on their front page (note: we haven’t received any funding from In-Q-Tel or any other venture capital fund and Unseen.is has nothing to do with the following companies or funds):
We identify, adapt, and deliver innovative technology solutions to support the missions of the Central Intelligence Agency and broader U.S. Intelligence Community.
Here’s a bit more about the intelligence agency partners In-Q-Tel has:
While CIA remains our primary partner, IQT has broadened its scope in recent years to support other agencies within the IC, such as the National Geospatial-Intelligence Agency (NGA), Defense Intelligence Agency (DIA), and Department of Homeland Security Science and Technology Directorate (DHS S&T). This expansion has allowed our partners to benefit from technology developments that are jointly funded, reducing risk and fostering better inter-agency information sharing and operations.
Our primary point of engagement with the IC is through the In-Q-Tel Interface Center (also known as the QIC), housed in the Central Intelligence Agency. Comprised of experienced CIA officers, the QIC provides a direct connection to the IC’s technology leaders and end users, ensuring our strategies and investments are on target. Each partner agency sponsors a similar team of interface staff tasked with helping to facilitate relevant technology deployment, transition, and acceptance within the respective agency.
If you’d to have a sponsor like this for your business, I’m certain they would be a great financial and strategic partner, they have a good track record and plenty of money and connections to other funds and they could probably get you a lucrative government contract while they are at it. Here’s a list of some of the other funds and institutions In-Q-Tel is or has been affiliated or associated with (note: Unseen.is has no association with any of these institutions):
- Federal Express
- Joint Chiefs of Staff
- Kissinger and Associates
- Kleiner Perkins
- Stanford University
This is an “A” list of connections by any measure and there are many other connections to all the other largest venture capital firms, such as Accel Parners (who were one of the main investors in Facebook).
Connections go beyond a particular fund, the world of VC’s is a very private club. For example, Wickr, a company focused on private and secure communications for mobile devices received an investment of $9 million, as reported by Tech Crunch:
The investment was led by Alsop Louie Partners, a VC that has backed companies that include Twitch and Justin.tv. Last year the VC took a big swing towards privacy, raising a $100 million fund to back security companies. That has included a round of an undisclosed amount in cybersecurity startup DeviceAuthority.
Other backers include Thor Halvorssen, president of the Human Rights Foundation; Gilman Louie, former head of the C.I.A.’s venture arm In-Q-Tel; networking company Juniper; former counterterrorism tsar Richard A. Clarke; Eileen Burbidge of Passion Capital in London and other investors that are not being made public.
We’re not saying it’s bad to take money from these people; for some businesses, it makes perfect sense. However, there are also advantages of not taking money from this kind of funding source. It’s definitely more difficult and there are many things Unseen.is could upgrade and build faster if we had the resources from a $9 million funding round. Increasing our tech team, building out more server capacity and secure data centers earlier in our development, promotion and marketing and other staffing could be improved — these things would definitely move things a lot faster. However, the price of hardware, the ability to reach a huge market and the availability of opensource technology significantly lowers the amount of capital required to build this kind of business. In the end, we think our users will be better served the way we are funding Unseen.is, with all the warts and wrinkles this involves.