The Most Promising Security Start-Up in 2008 is TRX Systems

Disruptive Indoor Tracking Solution Wins Global Security Challenge 2008

TRX Systems was awarded a $500,000 grant sponsored by TSWG of the U.S. Government for winning the 3rd annual Global Security Challenge (GSC) today. Six security startups, who were chosen out of hundreds of entrants, pitched their inventions at an event hosted by London Business School.

A Judging Committee comprised of leaders from government, venture capital and industry selected this year’s most promising security startup in the world.

TRX Systems, a spin off from the University of Maryland in the USA is a leading innovator in the development of personnel tracking solutions. TRX Systems created an advanced personnel tracking system that provides first responders with accurate and real-time locations of individuals deployed inside a building. TRX’s technology is self-contained, requires no pre-existing infrastructure and can even create virtual floor maps in real-time. (www.trxsystems.com)

GSC Security Technology Summit in London - 13 November 2008

The GSC Grand Final will occur on November 13th 2008 at London Business School.

It is a full-day event with speakers from government, industry, venture capital and startups. The event allows great networking opportunities with the world's leading security venture capital funds and technologists.

Confirmed Speakers Include: Chris Darby, CEO of In-Q-Tel (CIA's venture capital fund) John Reid, MP and former UK Home Office Secretary Stephen Dennis, Technical Director of HSARPA, U.S. Department of Homeland Security Colin Matthews, CEO of BAA Paul Wiles, Chief Scientific Advisor, UK Home Office General Victor Renuart, Commander of U.S. Northern Command, US Department of Defense Ronald Noble, Secretary General, INTERPOL

New Venture Capital fund in Europe focused on security technologies: Spuukie Venture Partners

We just heard the rumor that a new venture capital fund is currently fundraising for a pure-security technology fund: Spuukie Venture Partners [spooky]

This new fund is established by industry veterans who aim to invest in early stage companies, typically in Series-A rounds, worth $500K - $2m. While no geographic restrictions apply, the fund's partners mentioned to us that they will concentrate initially on the European countries and Asia as the VC/funding infrastructure in the USA is already highly developed for security start-ups, with VC funds as Paladin, NovakBiddle and In-Q-Tel.

Will keep you up-to-date with any news we hear about "Spuukie Venture Partners" also let us know if you know more than us about it. One thing is for sure, starting a security startup in Europe is going to get more excited now!

GSC Online Community Went Live: tools for security entrepreneurs

Today, the new Global Security Challenge Online Community went live.

Free Collaboration Tools for Entrepreneurs

The GSC online community is based around free collaboration tools for security entrepreneurs to ease access to VCs, to find partners and team-mates and to collaborate with each other.

Venture Capital Matching Tool

The VC Search Tool is based on our database of VCs dealing with security startups. It compares the information you've given us about your company and will make suggestions for potentially interested VCs. Here is an example:

New Global Security Challenge Webpage Goes *LIVE*

Exciting News: After two years of using our first webpage, the new, advanced webpage for the Global Security Challenge went online today!

Check it out, we think its pretty cool and are eager to hear your comments.

The URL is the same one as always: www.globalsecuritychallenge.com



Interaction & Research
The new GSC homepage aims to be very interactive and includes the following features:

• our blog articles with research on security that we publish twice a week
• an online application system for the competition's entrants
• information on our advisory services
• ... and soon an online community for security startups.

Some government backed innovation still misunderstood

The MoD’s recent move to open a "pilot centre for defence enterprise" has come under fire within the press. Evidently this new centre for incubation will be located in the Harwell Science and Innovation Campus in Oxfordshire. The proximity to Cambridge and Oxford is not lost although less for university spinouts for security technologies but perhaps more for serial entrepreneurs and investors (angels and otherwise) who can get involved in growing these baby companies.

The purpose of the centre will be to bring together groups of people (investors and innovators) that have been working together in non-defense related curricula for years. The goal is to better support the UK armed forces with novel technologies and there will be inbuilt incentives for individuals, SMEs, and academics to engage with MoD.

It sounds like the MoD is really trying to think outside of the box. "We have worked hard to remove barriers to innovative concepts and change ideas," said Baroness Taylor, the Minister for Defence Equipment and Support. Adding “Industry, big and small, academia, inventors, entrepreneurs, engineers and investors all have something to offer in developing the next generation of military technology. The Centre for Defence Enterprise will provide a vehicle for exposing these opportunities."

We at the Global Security Challenge are firm believers that enabling innovators will not only save money in the long term but it will make us safer. This opinion is not shared by everyone. Lewis Page of the Register argues that any time you try to foster innovation through a business environment you must somehow be greasing palms. His comments on the MOD incubator is that "these baby companies will be so flush with cash by the time they exit a government incubator that they will be the equivalent of flying pigs.”

Mr. Page is fundamentally mistaken in his assumption that governments can only muck things up. Incubators are an important part of creating and sustaining viable businesses. Your correspondent believes in the necessity of supporting security entrepreneurs particularly as they tend to face a more difficult path than others

German Government Provides €29 Million in Funding for Explosive Research

Germany’s Federal Ministry of Research is providing €29 million in funding for 16 new collaborative projects for the detection of toxic and explosive substances. Altogether 73 partner entities are involved in these 16 projects, ranging from universities, scientific institutes, defense companies and the police. From what is mentioned in the ministry’s public statements it seems that unfortunately no start-ups are involved in these projects.

One interesting and potentially breakthrough technology example is the project with the easily memorable project name IRLDEX, which aims to be used against Improvised Explosive Devices (IEDs) through a new infrared laser that takes advantage of the unique absorption rates of explosive materials. The project leaders for this invention are the renowned Fraunhofer Institut and the Bundeskriminalamt (German Federal Police). Interestingly enough are the remarks of project manager Dr. Oliver Ambacher, who is thinking about future possible commercial applications of this technology for identifying food-diseases (Gammelfleisch) and pesticides in textiles. While the question arises of how to spin-off such a technology from this public-private mission, IRLDEX might become another powerful example of a technology developed firstly for security that later addresses commercial needs and earns healthy returns in the marketplace for its investors and founders.

The ministry’s other research projects focus for example on the early and reliable identification of biological pathogens that cause epidemics. They also concentrate on the detection of noxious drinking water contaminants. There are also some projects that focus on researching the use of terahertz technology in security technology applications. More information on BMBF's website

The DHS Inspector General Takes a Look at Airport Security

The Office of the Inspector General at DHS recently released an unclassified summary of its undercover testing of airport screening, entitle an Audit of Airport Passenger and Checked Baggage Screening Performance. The OIG evidently sent in undercover agents to an undisclosed list of airports from May to August of last year. (you can read report here DHS OIG report)

The report doesn’t get in to the specifics of the experiment but you get a sense that if the IG presented TSA with six recommendations then there was probably something they could be doing better. TSA responded by thanking the OIG for it’s thoughtful oversight and replied that in April of 2007 they implemented

“the Aviation Screening Assessment Program to create a more systematic framework to assess the effectiveness of the screening process and provide statistically sound data. This program performed thousands of covert tests at airports nationwide in 2007. Under separate training programs, TSA conducts over a thousand covert tests for IED’s and almost 70,000 electronic image tests— every day.”

A lot of people are claiming this is primarily a people problem, that you must make screeners happier in their jobs and they will do a better job. If you take into account that 1.1 million people enter the US every day and there are rumours flying of a goal for screeners of 200 people/hour this is as clear a case as I have ever seen for an increased reliance on technology.

How could we expect any person to have the focus and the vigilance for 100% perfect screening while trying to cut down on queuing times? What we need is better technology that is less reliant on human manipulation. We wouldn’t use a calculator to manually fill in a spreadsheet, right?! We would use excel. So why do we rely so heavily on manual labour in airports? Because the technology just isn’t there yet.

Apparently in TSA agrees, and stated in the audit that in 2008 they will be introducing an improved screening checkpoint that focuses on three initiatives: “(1) improving hostile intent detection by reducing routine travel “noise” and focusing on telltale behavior; (2) deploying proven technology to screen for explosives on passengers and carry-on bags; and (3) reducing congestion and engaging passengers at more points in the journey—directly or indirectly.”

Standoff Detection - what are the benchmarks for such technologies?

One of the most difficult problems to solve in security technologies in the ability to know whether a person holds or a vehicle contains explosives. As we discuss standoff technologies today let’s first make sure that we are talking about the same thing.

Remote detection technologies allow personnel to respond to the threat of a suspicious object by taking a sample or a ‘sniff’ up close. This affords the luxury of getting results from a safer, remote distance. These remote detection technologies are not the technologies we’ll talk about today. While very important, today we are looking at situations where both the responder and the technology are removed from the situation.

There are many options in designing a standoff detection system. Should the sensor sniff for chemicals (in any stage of life) or should it rely on detecting different parts of the bomb such as wires or triggers. Also should it be ground based system or what about an air borne platform?

Last month TSWG posted requirements of its explosives subgroup. Their requirements should be a good benchmark for what standoff detectors should meet if they will bring innovation to this area. Here are the goals listed for explosive detection in vehicles:

And TSWG's requirements for explosives carried on someone’s person:
If your technology meets or exceeds these requirements you should enter the Global Security Challenge 2008.

Exit Opportunities for Security Startups Look Bright

VC Money is Sign of Healthy Exits
We blogged last week about the availability of VC money for security startups. The selected entrepreneurs who made it to the final rounds of the Global Security Challenge collectively raised over $19 million following their participation. In a recent article in Red Herring, Cassimir Medford confirms the vitality of fundraising for security technology citing the example of Proofpoint -- an email security startup. This is a good sign for healthy exit opportunities in this market, because VCs typically only invest in startups they believe will earn them exit with a return of at least 10-x-cash,.

IPO as a Viable Exit Opportunity?
While current market conditions for an initial public offering are difficult for any startup, security startups have had a mixed scorecard. The fingerprint and hand-scanning company Cross-Match withdrew its filing for an IPO in January 2008, citing an unfavorable market environment. Broadview Networks, whose solutions ensure protection of critical data and networks, is still on track for its IPO in 2008. It filed for an IPO on Nasdaq in November, aiming to raise $288m. Sourcefire experienced a fast path to a successful IPO. The network intrusion detection startup was founded in 2001 and just 6 years later completed its IPO, generating $86.3 million.

M&A the More Attractive Alternative?
It is every entrepreneur’s dream to take his idea to IPO, but realistically the recent corporate acquisitions of security startups show a very active market that may prove the better route for security entrepreneurs.

Lately a bunch of acquisition deals for IT-security startups have happened with high valuations and hence nice payouts for the founders and investors. Cisco Systems spent almost a billion dollars last year for acquiring IronPort ($830m) and Securent ($100m). Not surprisingly, Google also went on a shopping tour and bought the on-demand web security firm Postini for $625 million last July.

However, IT-security startups are not the only hot acquisition targets as physical security technologies, such as biometrics and video surveillance, appear on the buying lists of industry leaders. In January 2008, L-1 Identity Solutions bought the finger-scanning company Bioscrypt for $44million. Neither are these deals contained only to the US, as the Israeli video surveillance company NICE bought Actimize for $280 million in July 2007 – a nice pay day for an 8-year old startup, no?