Only nine of the 12,500 companies that proposed homeland security technologies for the Defense Department after the Sept. 11, 2001, terrorist attacks received funding, demonstrating just how risky investments in that market may be, according to one investment firm.
To help venture capitalists and corporations determine how to better target their dollars in the market, the Washington, D.C.-based homeland security investment firm O'Gara Company on Wednesday unveiled a guide for determining where federal dollars will be spent and where the likely growth areas in the sector are.
"We wanted to understand what was driving this market, and so we created a roadmap to understand what the opportunities may be," said Tom O'Gara, founder and chairman of the firm.
While the Homeland Security Department has a fiscal 2003 budget of $28.2 billion and that is projected to rise to $36.2 billion in fiscal 2004, O'Gara Company has estimated that the actual market for federal security contracts is only $6.13 billion in fiscal 2003 and $7.21 billion in fiscal 2004.
Most of the remaining money is being spent on personnel and other costs of operating the department and hence is not available to private contractors, according to the report.
The report identifies the areas most likely to provide the highest investment returns for corporations and venture capitalists as cargo-screening technology, equipment for "first responders" to emergencies, multi-model cargo security for tracking and authentication, aviation screening technology and physical security upgrades.
The areas least likely to provide high returns involve integration of the Homeland Security Department and in the intelligence community, law enforcement intelligence training, identification systems for national and population segments, and state and local intelligence sharing, the report said.
O'Gara also warned companies that Homeland Security is trying to make decisions about the best technologies even though it has existed only five months, and hence in the short term officials are likely seeking off-the-shelf technology solutions with proven markets, not new technologies.
O'Gara noted that many technology companies have come to Washington offering security technologies but so far have been frustrated with the Bush administration's follow-up to requests for ideas. He described the Homeland Security officials charged with private-sector outreach-Homeland Security Undersecretary of Science and Technology Charles McQueary and Al Martinez-Fonts, special assistant to the secretary in the Office of the Private Sector-as currently being public-relations specialists without any real power to help companies get contracts.
Despite that difficulty, the report said some companies are making money in the market. To demonstrate, it identified 30 "pure play" security companies-such as CACI, Entrust, Intergraph and Symantec-that have seen an increase in their market share since Sept. 11.
As to frustrations that money has yet to begin flowing to the private sector, O'Gara said, "Politically, I think homeland security money will be flowing by the summer of 2004," before the presidential election. "Homeland security money is like God and country."
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