May 25, 2022 | Eric Schmidt’s Hidden Influence Over US Defense Spending | By Tech Transparency Project
Former Google head has assembled a secretive fund with Washington insiders to help direct US national security investments—potentially to his own benefit.
Eric Schmidt has been quietly building an investment vehicle blending public and private funds that could grant the former Google CEO unusual influence over U.S. national security policy and, potentially, the opportunity to steer taxpayer money to his own bets.
The blandly named America’s Frontier Fund—which has so far received no media attention—will be led by a who’s who of the defense establishment combined with close associates of Schmidt’s ventures in business, finance and public policy. The high-powered investment vehicle appears to be modelled on In-Q-Tel, a nonprofit venture capital firm with close ties to the Central Intelligence Agency that has faced allegations of serious conflicts of interest among its trustees.
In fact, AFF will be helmed by the former chief executive of In-Q-Tel, Gilman Louie, and a former executive at Schmidt Futures, Jordan Blashek. A roster of well-connected defense insiders will populate the board and serve as its anchor funders, including Michèle Flournoy, former undersecretary of defense under President Barack Obama, former Secretary of Defense Ash Carter and H.R. McMaster, U.S. national security advisor at the Trump White House.
Also listed among the new group’s “Board of Directors and anchor funders”: Eric Schimdt himself, according to a draft press release briefly published on its website, which suggested it was preparing for an official launch as soon as this week. The draft release was viewed by TTP before it was taken down.
The exact source and amount of public money involved remains unclear. However, the draft press release acknowledged AFF’s unusual nature, referring to it as the nation’s first “public-private” fund able to “leverage public, private and philanthropic capital” for defense-related tech investments.
“This structure enables AFF not only to raise and deploy long-term private capital, but also to invest government funding designated for technology development,” it stated.
Other publicly available documents shed some additional light on the fund’s plans. A job posting noted that AFF’s “primary government clients” would include the departments of Commerce, Defense and Energy and, in the future, state-level clients. Blashek, AFF’s president, has described AFF’s average investment range as between $500,000 and $10 million, with a “sweet spot” of $1 million. (Similarly, In-Q-Tel’s investments “typically range from $500,000 to $3 million.”)
A draft press release announcing the launch of America’s Frontier Fund was removed shortly after it was posted.
It is unclear whether the new fund and its principals will be subject to any governance controls to prevent abuse. One concern is that AFF could confer a special seal of approval by the U.S. government on highly speculative investments by its well-connected principals. The prospect of a government contract, especially in the lucrative area of defense, could generate outsized gains for early investors.
Another concern is that many of those involved in AFF are extremely well-connected in the U.S. government, in venture capital and in tech startups. It is unclear if any safeguards could prevent the principals from profiting from their inside knowledge and ability to direct public investments.
It is more than a theoretical issue. According to a 2016 report in the Wall Street Journal, nearly half of In-Q-Tel’s trustees had a financial connection with companies backed by the CIA fund.
The risk is particularly serious for Schmidt, who is reported to have “invested millions of dollars into more than half a dozen defense startups,” and could use his influence over AFF to direct public funds to startups in which he is an investor. According to the draft press release, the fund’s “initial areas of focus include microelectronics, artificial intelligence, and advanced networks (5G/6G).”