Speaking at the GCV Symposium in London today, Erin Hallock, a managing partner at oil and gas supplier BP’s corporate venture capital arm, BP Ventures, highlighted the difficulties in getting investors on board for startups with nascent technologies.
Hallock said BP Ventures is currently trying to pull together investors for an unnamed startup focusing on sustainable aviation – a sector that does not yet have a credible decarbonisation plan – that is working on technology which will require hundreds of millions of dollars to build a pilot project.
For newer corporate venturing units, a major concern is building a track record, which usually means making safer bets and going into later-stage rounds where the economics are less compelling but are more likely to result in quick wins.
Similarly, there can be a question as to the extent to which a potentially transformative investment with a lengthy return horizon serves as a pet project for an investment director or executive, and whether the investor will maintain interest if they leave.
Corporates also tend to be less comfortable with that kind of high-level risk than venture capitalists and can be influenced by consensus-based conversations and over-analysis.
Other investors can be hesitant to enter the syndicate for such a deal because, even though a frontier technology startup could be a unicorn in 20 years’ time, they are looking for an internal rate of return over a five to seven-year period, making a longer horizon untenable.
The solution could involve engaging with new kinds of investors such as pension funds and sovereign wealth funds, which have investment horizons which are considerably longer. Internally, corporate venturers would do well to emphasise the strategic side of the proposition when pitching, focusing on the transformational aspect even if financial returns appear distant.
