US-listed oil major Chevron has for more than a decade used corporate venturing as a less traditional method to find and leverage technology for greater performance and growth.
Such consistent application of corporate venturing has been relatively rare in the petroleum industry, even if Chevron’s experience has delivered its strategic and financial goals through 57 investments, latterly under the leadership of Trond Unneland, managing executive of Chevron Technology Venture Investments since 2007.
He said its relative longevity came from the continuous support of senior executives, as well as finding and keeping the right investment team, having a process to screen and partner internal and external executives and deal with the cultural tension of working with financiallydriven venture capital firms and the internal dynamics of being a unit of a large company.
John McDonald, vice president and chief technology officer at Chevron, said: "Differentiating performance through technology is a major business strategy for Chevron.
"Venture capital is one of the channels we use to create an ‘innovation pipeline’ to new technologies that meet specific business needs. The venture capital portfolio performs the role of identifying technology advances that could strengthen our core operations or lead to new profitable growth opportunities."
The primary objective for Chevron is to use venturing as a way of improving its own research and business development and the team of seven has assessed more than 3,500 companies – or one a day for a decade. A third of the proposals have been unsolicited from entrepreneurs and others from Chevron employees.
However, 60% of deals actually done have come from more than 100 venture capital firms in the consortia even though they provided fewer than a fifth of the proposals, according to a paper written by Chevron for the Society of Petroleum Engineers last year. Chevron is also a limited partner in 10 independent venture capital firms, including Ampersand Ventures, Asia Pacific Ventures, CMEA Ventures and Oxford Bioscience.
Unneland declined to comment about the financial return from the equity invested beyond saying it compared favourably with the US trade association’s average returns over the past decade.
Chevron still holds stakes in 32 of the 57 companies it has backed but has acquired none of its portfolio. However, a primary goal is to facilitate technology transfer into the company, hence the group reporting to McDonald.
Since its formal launch in 1999, Chevron Technology Venture Investments has helped transfer more than 100 technologies to the main company, worth more than $100m, Unneland said. The Chevron North America Exploration and Production division has taken nearly a third of these technologies.
Through about $190m of direct investments by way of a series of four closed-ended funds, which have another $60m to invest, where Chevron is the sole limited partner, the venturing group aims to identify and allow a more rapid implementation of technology into field operations to increase production, improve employee productivity and lower costs.
The investments have been primarily outside the main oil and gas sector, including biotechnology and genetic engineering, such as Solazyme that uses bacteria fermentation to produce renewable oil; information technology (IT), including investments in computer network storage device group BlueArc and email filtering company IronPort Systems (see box); and advanced materials and nanotechnology, including Microfabrica and Sub-One Technology.
Over the past decade, investments have been split 27% into clean-tech, half into IT and 20% into oil and gas-related businesses.
However, in the past three years the focus on clean-tech and oil and gas-related businesses has increased. Unneland said clean-tech companies comprised about one-third of his team’s portfolio, and there was no conflict in investing in both clean-tech and traditional oil and gas technologies. “We invest in companies whose technology has the potential to improve Chevron’s base business. That includes traditional energy, information technology, and clean tech companies. Obviously, the closer fit the technology has to our base business, the greater and more immediate impact it can have for us.”
Technology transfer: Case study of IronPort Systems
Chevron invested in email filtering company IronPort Systems in late 2003 as the company was being swamped with more than 500 million messages a month. The previous technology filtered out 70% of unwanted emails but the investment in IronPort and assignment of an internal team to help the new portfolio company develop its technology for large enterprises meant it was subsequently used by the group worldwide.
The IronPort software blocks 94% of emails – or an extra billion a year – giving efficiency savings to the group of $32m every 12 months. Chevron had initially invested in IronPort’s $29m series C round, with Chevron and other strategic investors, including car maker General Motors and Japanese phone operator NTT, providing $14m.
Chevron was also part of IronPort’s $45m series D round the following year. With Chevron as a customer and investor, IronPort was able to expand and server company Cisco Systems acquired it for $830m in 2007 compared with its $100m of total funding since launch in 2000.
Fact box – Chevron Technology Venture Investments
Assets: >$250m, four funds
Portfolio: 32
Key people: John McDonald, chief technology officer; Trond Unneland, managing executive; Mike Brooks, venture executive; John Hanten, venture
executive; Don Riley, venture executive; Matthew McElhattan, principal; Richard Pardoe, principal