Quest For Strategic Deployable Solutions Fuels BP's Venture Funding Arm, Says Its Boss

Faced with an evolving global energy mix, practically every major player in the oil and gas business is seeking avenues to gain a competitive advantage as well as meet the obligation of a lower carbon footprint. The senior executive leading that charge for oil major BP (LON:BP) via the company's venture capital (VC) funding arm BP Ventures says it is all about "future proofing" and finding "strategic, scalable, deployable and profitable" solutions.

Speaking exclusively to Forbes, David Gilmour, Vice President of Business Development at BP, says the company's "dual challenge" these days is to provide energy for a world that continues to have greater demand for energy, and at the same time fulfill that obligation with a lower carbon footprint.

"In meeting that dual challenge, BP Ventures is trying to find interesting valuable innovative companies that are sitting outside of BP which make a material impact on those twin challenges. We seek nascent technologies that we can deploy in our business to bring a tangible difference to BP's efficiencies and carbon footprint; and to give us a competitive advantage."

On the surface, BP Ventures might come across as a routine VC funding outfit but its end goals subtly differ from a conventional fund. "BP Ventures started in 2006 as part of our alternative energy business. As that business grew, the division found its own feet as an innovation arm dabbling in assets from genetics to biodiversity, solar farms to wind turbines.

"In 2012, we reviewed our thinking and made it more strategic. Instead of contemplating early stage entry like many VC funds do, our thought process became more considered and measured [and remains so] in terms how a particular business can make a difference to our headline growth."

Gilmour says its defined mantra is to track, trace, nurture and mature investing targets. "We're not looking at just potential for financial returns and it is not necessarily about ownership, rather also about partnerships. We're not a VC fund with a 'try before you buy' philosophy."

BP Ventures primarily hunts for viable plays in five spheres – bio-products, advanced mobility, digital transformation, carbon reduction and power, especially electric mobility. And its recent investments offer a case in point.

In June alone, it has unveiled two eye-catching developments. On Thursday (27 June), BP Ventures revealed a $30 million stake in California, US-based Calysta, a company working to enhance the sustainability of fish and livestock farming by generating their feedstock protein from methane.

Earlier in the month, on 11 June, StoreDot – an Israeli battery developer it pumped $20 million into in 2018 – joined the oil major in revealing its prototype equipment to charge an electric scooter in a mere 5 minutes.

"I can only describe such investments as a win-win situation. We get the technology we need; the start-up feels the advantage of de-risking; and also wins BP as a customer."

In a classic sense, it is not the kind of monetization generally associated with a VC funding. Direct correlation can be drawn with both investments and BP's portfolio. The oil major is fitting electric charging points at its forecourts, including in emerging markets like Mexico, and methane plays are well within its hydrocarbon mix.

"As the emphasis on emissions reduction rises and the world heads to new energy frontiers [where coal is seen to be moving out, natural gas serves as the bridging low carbon alternative and electric mobility rises], such investments fit right in."

And the oil giant's funding outfit can be found chasing investment opportunities from Israel to India, from Scotland to the Silicon Valley, with pretty much all else between by scrutinizing deal flows via a small close knit team doing the due diligence. Gilmour has three regional managing directors and 15 VC experts assisting him. "We're a globally dispersed organisation. We scout for assets, we monitor deal flows and unsurprisingly disruptors approach us directly to make their pitches as well."

BP Ventures invests around $200 million in VC funding per year, and another $500m via its New Energy Frontiers program, but winning approval is a hard slog, with a 100 to 1 chance of successfully winning BP's backing. That too is via an arduous process.

"We look at the start-up's management team, their motivations and their drive. Then comes the due diligence process and a minute examination of the technology, intellectual property and potential route to market. It then gets to our investment committee stage called out from all parts of BP, comprising of 10-12 executives, who examine the investment risks and challenges. Following their wise counsel, we make a considered call on whether to invest or not."

Gilmour says it is very easy to spend money in the VC world. "The big challenge is to spend it as wisely as you can, to get the best possible chance to deploy the technology and get a return. We owe it to our stakeholders."

The BP Ventures boss also sees value in collaborative approaches via a consortium with many energy industry vendors such as ABB (SWX:ABBN) and Schneider Electric (EPA:SU) having their own VC funding outfits with similar objectives.

"I started my career as a research scientist. So by nature, I have a empathetic eye for high quality entrepreneurial activity. I have spent a lot time in automotive, shipping, paints and lubricants and aviation fuel businesses. In my current role at BP, I have an opportunity learn the challenge of nurturing an idea through to making it a real business; and a collaborative spirit forms part of it."

In that spirit, VC funding outfits of industry peers and vendors are a welcome addition to the landscape. "Their presence and that of business investment consortia is the ideal way forward. For instance, alongside our $30 million investment, and subsequent technology licensing with Fulcrum BioEnergy, a California, US-based biofuels developer, we had several investment partners ranging from Johnson Matthey to airlines like Cathay Pacific and Qantas."

As for bearing the pain of potential failures, Gilmour says it is part of the territory. "At most VC funds, out of 10 companies you invest in – one would be the performance star, six will probably fail, and three will just about manage there or thereabouts. You need to have a sizable portfolio as a promising VC fund and we believe BP Ventures more than matches that criteria."

Source: Forbes.com

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