AAA Profile: Royal Dutch Shell

Profile: Royal Dutch Shell

“Corporate venturing is sometimes a struggle for long-time seasoned technology managers to accept that, in order to get the most out of the technology, sometimes you have to lose some control”, according to Chris Haase, adviser to the chief strategy officer at Royal Dutch Shell.

But in a 100-year-old oil company with a history of successful innovation and long-term growth, it is a struggle the company appears willing to take on.

Earlier this year, Shell created the role of vice-president (VP) of innovation to help bring together its corporate venturing units with other parts of its technology and business development teams.

Thijs Jurgens took up the VP innovation role after working at Shell as a senior adviser to the executive committee with a focus on Europe and sub-Saharan Africa.

Reporting to the chief technology office, Jurgens is looking at how open innovation with external partners and encouraging internal ideas to be incubated can help a capital-intensive industry develop its technology.

Shell has been expanding the innovation toolkit Jurgens can work with.

The company has set up a Pathfinder incubator for internal ideas as well as creating Shell Technology Ventures (STV) II as a corporate venturing fund to back external entrepreneurs and complement its first STV vehicle, now managed by Kenda Capital (see box below).

The model is at least in part based on pioneering work by Germany-based industrial conglomerate Siemens, according to Shell insiders, which has tools for indirect investing in funds, direct investment and internal research and development (R&D).

Both STV and Pathfinder, which is specifically looking for future and alternative energy projects, are being seeded with ideas going through the Shell GameChanger programme, which is a method of supporting and funding pioneering new projects to the proof-of-concept stage, at which point, Shell or other venture capital firms step in to continue to fund worthy projects.

In a speech last month at the CEIBS business school in China, Jurgens said GameChanger had seen over $250m invested in more than 2,000 ideas, and about 200 ideas had been commercialised over more than a decade (see previous profile on GameChanger in related content).

GameChanger’s latest projects include looking at specific technologies, such as cars. Shell, along with crowd-sourcing design network Local Cars, in January set up the Driven car design competition.

The LM Urban Pod car from Paulo Encarnação won a total of $7,000 in the competition and Shell’s GameChanger team will turn the design into a quarter-scale model and showcase it at events around the world.

The car is designed to help tackle the challenges of congestion in São Paulo, Brazil, and was chosen from five winning cars, each designed to overcome a mobility challenge in a selected city where Shell has a technology centre or a major project – Amsterdam in the Netherlands, Bangalore in India, Basra in Iraq, Houston in the US and São Paulo in Brazil.

Shell categorises its various projects under four technology platforms – core, first, emerging and enabling. In the core category, engineers review and improve on existing projects.

The first category is where Shell works in more difficult areas, while, in the emerging category, engineers pursue cutting-edge breakthroughs, such as clean energy. The enabling category refers to support and upkeep of the other platforms.

Haase, whose boss is responsible for $1.2bn of R&D at the company, in a speech at the Global Corporate Venturing Symposium in May said since 2009 “Shell has now focused its R&D efforts around 30 or so technology platforms, which are very tightly integrated to our value chains”.

He added: “Our technology platforms are managed very much like independent businesses, with their own decisions, they own returns and their own dynamics and business drivers.

“However, that is just not enough and Shell has been very active for decades in the area of corporate development, particularly work with venture capital … In today’s world, the conventional partition of internal and external R&D is largely a red herring. Every single one of Shell’s 30-plus technology platforms has an external technology component.

“The real value is captured through the integration of the internal and external R&D together and putting it to work in the business. As for the not-invented-here syndrome, when we bring a technology in for validation, if it meets some modest technology resistance internally about challenging ‘we can do that just as well’, that is probably a good sign.

“It means that we are bringing something in which is putting up a competition for the best ideas to win inside the company, which is a very healthy thing.

“The big challenge we face from a corporate venturing and corporate management perspective is that extracting the most value from the technology and applying it and deploying it fastest in the field sometimes requires losing control – not taking a controlling position but taking a minority stake.

“However, that minority stake does a few things. It brings fresh DNA in, it brings in external validation of the technology from other corporate investors and it allows that technology to grow and replicate faster in the market, which ultimately drives down cost and improves the quality of those product offerings for the Shell shareholders.

“Therefore, corporate venturing is sometimes a struggle for long-time seasoned technology managers to accept that, in order to get the most out of the technology, sometimes you have to lose some control.”

Box: Shell Technology Ventures

Kenda team includes:
President: Eugene Murphy
Managing partner: Erik Vollebregt
Chief financial officer: Brendan Barry
Vice-president: Ali Sharifi
Investment principals: Jason Roe, Aruna Subramanian, Edgar Kuipers

Five years after the innovative sale of a majority stake in its first Shell Technology Ventures (STV) portfolio, the Anglo-Dutch oil major has set up a second vehicle to take equity stakes in start-ups.

Shell retains just less than 50% of STV I, which is managed by Kenda Capital since a majority was sold in March 2007.

The other shareholders in STV I are secondaries firm Coller Capital and one of its limited partners (investors), Abu Dhabi Investment Authority, a state-owned body that invests on behalf of the oil-rich emirate.

Coller had a close relationship with Shell since acquiring a $265m portfolio of private equity fund commitments from the oil major’s pension fund a decade earlier in 1997.

However, the challenge of developing a portfolio 42 technologies into commercial companies has seen Shell re-evaluate the model and set up STV II run by Geert van de Wouw.

Insiders said STV II will look to be a more traditional corporate venturing unit to take direct, minority equity stakes in external entrepreneurs as part of venture syndicates with third parties.

As one person close to STV said, Shell had invested a substantial amount of money in the first vehicle but had yet to see much return. A second source close to STV said it had seen fewer exits – about a handful he said – than hoped for.

The last public sale was in May 2010 when US-listed energy services company Smith International acquired the remaining shares in @Balance from fund manager Kenda Capital.

There has also been – at least publicly on the portfolio companies’ websites – relatively few syndicates formed with third parties.

Of the 15 STV I portfolio companies listed on Kenda’s website,

  • Lime Rock Partners invested in Twister in 2005;
  • Black River Asset Management, a wholly owned but independently managed subsidiary of crops trader Cargill joined Kenda in backing Prometheus Energy in a $20m round in July 2009; and
  • Enventure Global Technology was established in 1998 as a joint venture between Halliburton Energy Services and Shell Technology Ventures.

In the latest public deal, in June 2011, Alstom, a France-based engineering group, took a 40% stake in UK-based AWS Ocean Energy for an undisclosed amount and as its first investment in a wave energy firm.

While many of the technologies remain innovative and commercial successes, therefore, Kenda has faced a challenge seen by many venture investors in clean-tech – the time horizons are long-term and require capital as well as a testing ground with large customers.

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