Exclusive-CIA-backed investor helped top German drones firm break into US

By John O'Donnell and Maria Rugamer

MUNICH, Aug 31 (Reuters) - German drone ‌maker Quantum Systems gained an early ​foothold in the ​United States with help from CIA-linked investor In-Q-Tel (IQT), its co-CEO said, highlighting how U.S. capital and networks continue to shape Europe's emerging defence companies.

Sven Kruck told Reuters that U.S. investors including IQT helped open doors in Washington and win work with the Central Intelligence Agency and Federal Bureau of Investigation.

The comments, reported here ‌for the first time, underscore the importance of U.S. investors and contacts to some European defence startups even as governments across the continent ⁠push for greater independence from Washington.

"It made it easier to get started in the U.S. with clients CIA and FBI," said Kruck, whose firm sells reconnaissance, attack and interceptor drones to countries including Ukraine and Germany.

"There were routes that ‌opened up. That's how we found the way ‌to the USA. We were stronger in the U.S. early on, where the German customer was much weaker."

Berlin is seeking to reduce its dependence on Washington, after President Donald Trump threatened to abandon NATO, the alliance underpinning Europe's defence against Russia.

But rebuilding Germany's long-neglected military without access to U.S. capital and defence markets is a major challenge.

Kruck said business ​generated from a reconnaissance contract with U.S. intelligence agencies was modest but helped establish Quantum's credibility. The company is now one of Europe's biggest defence startups, valued at around $8 billion.

Like other defence companies, Quantum cannot sell technology developed in the U.S. to other countries without U.S. approval.

The case also underscores the growing reach of IQT, the venture capital firm established ⁠by intelligence officials to identify and invest in technologies relevant to U.S. national security.

IQT, whose name is a nod to James Bond's gadget maker Q, owns stakes in several companies including German defence firm Stark, and is increasingly focusing on Europe ​as the continent ramps up military spending.

While IQT's investments are typically small, often less than $3 million, one person with knowledge of its operations said its value lies in connecting companies with U.S. defence buyers, the sector's top spenders.

"Europe's deep-tech ecosystem is a critical source of mission-relevant innovation," ​said Jennifer Nelson, executive vice president international at IQT, responding to Reuters' questions.

"Germany is a particularly important ‌innovation partner and strategic ally," she said, calling it a "cornerstone of Europe's defence ecosystem".

The venture firm, which invests in technologies ranging from cybersecurity and energy to satellites, has backed startups including data analytics giant Palantir Technologies and Anduril, one of the biggest military technology and drone firms.

"IQT continues ⁠to expand investments in German dual-use innovators ... so allied government teams can evaluate and adopt breakthrough capabilities faster," said Nelson.

PERVASIVE U.S. INFLUENCE

As Europe seeks to reduce its dependence on U.S. military power, IQT's growing presence in the region has prompted concerns that strategically important new technologies could become increasingly tied to U.S. interests.

Marie-Agnes Strack-Zimmermann, chair of the European Parliament's security and defence committee, said IQT should be viewed differently from a conventional ⁠investor because of its links to U.S. intelligence agencies.

"In-Q-Tel is not a purely financial investor but has a mandate to secure access to the best technologies for the U.S. intelligence services," said Strack-Zimmermann.

"There can be ​strategic influence beyond the business with the United States through investment stakes, observation rights, development and licence deals as well as the access to government contracts."

Earlier this year, CIA Director John Ratcliffe said it was "optimizing our approach to working with the private sector". The CIA declined to comment.

Germany's defence ministry said it took investor influence in the defence sector seriously and that shareholders should not interfere with a company's operations, ‌technology or research.

Kruck's comments shed light on the close links that continue to bind Europe's defence sector to the U.S., even as governments strive to build up domestic military capabilities.

"Every investor ... has a network behind it and, logically, you try to use this," Kruck said, adding ‌other investors had also helped the company.

"At the end of the day, your products have to be convincing. But for sure, American investors ... know the administration that rules and make it possible to open up communication."

Kruck ⁠added, however, that IQT had not sent him a "proactive email" in the ‌past two years.

He also pointed to Washington's requirement that foreign ​defence suppliers establish local operations in the U.S. "That is why we have factories in the USA and staff there," he said.

European lawmakers have argued the region needs to do more to channel funding into startups. Europe has no equivalent of IQT.

(Additional reporting by Jonathan Landay in Washington. Editing by Elisa ‌Martinuzzi and Mark Potter)

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Europe expands AI computing network with €390 million order from France's Bull
• North Korea says hostile US policy unchanged, vows to strengthen nuclear force
• OpenAI issued warrants worth $5.5 billion in SB Energy, WSJ reports