American spies are trading in their trench coats for pinstripes, and investing in Canadian tech companies.

A venture capital fund set up by the Central Intelligence Agency just made its second foray into the domestic market, buying a stake last month in Vancouver-based Idelix Software Inc.

The CIA-sponsored fund is called In-Q-Tel. It's a “non-profit” venture capital fund, established in 1999, as its website says, to “identify and deliver transformative technologies to the CIA and the American intelligence community.”

In addition to a stake in Idelix, which builds software that blends satellite images with all sorts of other data, In-Q-Tel has stakes in 80 other companies. Its other Canadian holding, taken in 2004, is in Verdun, Que.-based IatroQuest Corp., which builds sensors used to detect biological agents and other small chemical molecules. U.S. holdings include a wireless surveillance firm and a company that makes combat simulators.

Where are In-Q-Tel offices? Sorry, that's classified, although its press centre is in the Washington area. How much did the spies invest? Idelix is not allowed to say.

Idelix spokesman Brad Zaytsoff says: “As you can imagine, they are somewhat secretive.”

However, Idelix is quite open about the benefits that this backer brings to a small Canadian tech company.

“In-Q-Tel's backing represents incredible validation in the intelligence community, which is critical to a foreign company, and in the Silicon Valley and consumer markets,” said Keith Ippel, president of Idelix. The fund itself boasts that it has sold more than 100 technologies from companies it holds to various U.S. intelligence agencies.

To date, In-Q-Tel has stayed in the shadows in Canada, but the investment in Idelix got the fund outed in a venture capital newsletter published by Toronto-based Fusion Capital Partners, which has worked with Vancouver firm in the past.

In-Q-Tel is a private fund that invests for the CIA, FBI and the U.S. Department of Defence, but it's not a government agency. In fact, In-Q-Tel seems to be structured along the lines of a conventional venture capital fund. Employees invest their own money alongside the CIA, so both the fund managers and spies make money when holdings are sold. Chief executive officer Gilman Louie ran a number of tech companies in the interactive entertainment sector — he is credited with introducing the video game Tetris to North America — prior to joining the fund.

In addition to winning business from the spooks, In-Q-Tel is validating companies by picking winners. The fund was an early backer of another satellite mapping company, called Keyhole Inc., that was bought last year by Google Inc. for a price estimated to be in the $30-million (U.S.) range.

A government client of Idelix — it also does work for the Canadian Department of National Defence — introduced the Canadian company to the CIA-based fund at a New Orleans trade show in October, 2004. Mr. Ippel said the due diligence process was surprisingly simple.

“Security clearances were never an issue, and In-Q-Tel places no restrictions on the company, or where we sell our technology,” Mr. Ippel said. “The fund is now comfortable investing in Canada, and that means Canadian companies can get new exposure to other U.S. venture capital funds.”

Along with cash, the In-Q-Tel link brings connections. Just after the CIA fund made its investment last year, IatroQuest welcomed a new board member named Arthur Money. From 1999 to 2001, Mr. Money was an U.S. assistant secretary of defence, and he served in senior roles at both the Defence Department and the U.S. Air Force.