AN investment fund launched by the CIA, the US intelligence service, has made its first investment outside North America, with a stake in a British software firm.

In-Q-Tel, a fund which specialises in investing in technologies that can be adopted by the security and intelligence communities, has taken part in a £2.25m fundraising by Etherstack, a developer of software used in two-way radios employed by the military and the police.

The deal values the business at £20m.

Founded five years ago by David Deacon, an Australian, Etherstack is expected to generate sales this year of between $6m (£2.9m) and $7m.

Although it is based in London, the company is doing an increasing amount of business in the US, and the fresh funding is designed to help boost its presence on the other side of the Atlantic. Existing clients include Lockheed Martin, Ray-theon and Cisco.

Etherstack plans to list on AIM within two years, and is likely to appoint advisers to work on a float in 2008.

In-Q-Tel was set up in 1999 at the behest of the CIA. Although it is not owned by the agency and is independently run, the fund invests in technologies exclusively for the CIA and the American intelligence community. The aim is for it to buy into businesses that can assist the agency in its work.

So far, In-Q-Tel has invested in more than 100 different companies. It is a not-for-profit organisation and says its success is gauged by how well its investments are adopted by the intelligence services.

Other companies in which In-Q-Tel has bought stakes include Keyhole, which creates 3-D mapping software. That business was subsequently acquired by Google, the search-engine giant.

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