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Federal funds are motivating VCs to invest in security firms.

This story appears in the February 2004 issue of Entrepreneur. Subscribe »

The push for homeland security is unlocking a treasure trove of government money, and venture capitalists are taking note. Combining pieces and parts from 22 other government agencies, the new Department of Homeland Security controls a budget of more than $31 billion for 2004. Analysts at corporate consulting firm Frost & Sullivan estimate total federal spending aimed at homeland security initiatives will be $41.3 billion this year.

With all those dollars up for grabs, VCs are looking for young companies that can address the security market. While some wonder if VCs and government bureaucracies will ever be compatible, there seems to be little doubt safety and security in general is a good investment. VC firm Core Capital Partners LLC counts itself among the believers. "We've been interested in security for a long time, but now that the technology has additional applications in homeland security, it's an even more attractive investment," says Jonathan Silver, founding partner at the Washington, DC, firm.

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