James Mawson: Our first keynote will be from Justin Adams. I shall not give too much of an introduction to Justin, who probably is known to most of you here. For those who want more of a biography, do have a look in the symposium agenda where there are more highlights of his career. Let me briefly say that Justin was founder and former head of BP Ventures, he left in April to set up his own company to advise and help the corporate venturing world in its ecosystem. He will talk more about that in his presentation. Justin has spent 19 years championing innovation and sustainability within the energy and natural resource industries. BP is one of the world’s largest oil majors, he built the corporate venture team and a carbon solutions business, so Justin was one of the thought leaders at that company.
Justin Adams (Ex-head of Emerging Business and Ventures at BP – click here for his slides): Good morning, it is a great honour to be here in such esteemed company, with many friends and former colleagues, and to see the calibre at the award ceremony last night of the people winning those awards, I feel somewhat humbled standing here giving you some of my reflections on corporate venturing.
I have three short areas that I want to cover. I shall give a brief introduction to what I did at BP. I shall then talk about the key lessons or takeaways that I have from that experience, and then I shall offer some thoughts on some new models that may be required as we think about how corporate venturing will evolve in the years ahead.
I was in BP for nine years, and for the last six years I led the Ventures Team which I was honoured to be asked to set up in 2006. We reported both into the Corporate Technology Team, as well as into the new Alternative Energy Division and, by the time I left, there were approximately 30 investments with about $150 million deployed across a variety of sectors, predominantly focused in bio-energy, carbon and electrification. I have known many of you in the corporate venture world at a time when corporate venturing has had something of a renaissance, and it is wholly fitting to congratulate Jim on two years of recognising that renaissance and creating a publication and a symposium for the industry, nascent as it is to start getting together. Therefore, Jim, I would like to thank you for your leadership in bringing people together. [Applause]
I have sat with the industry as it has developed and back in 2006 there were all sorts of people telling me why corporate venturing was always doomed to failure, why the financial VCs never wanted to work with you and there were only two or three successes, of which Intel was always No.1, of corporate venture teams that worked. We did some work back in 2004/5 and found that the average life of a corporate venture team was three to four years, so, on that basis, after six years I thought it was probably time for me to move on, but more of that in a moment.
There are eight takeaways from my time with BP running the Corporate Venture Unit. Everybody has a version of them but these are just my eight, they are not gospel by any means. The first, as everyone will tell you, is we have to ensure senior level support, and what happens when that senior level support moves on, is the senior level support maintained across a broader swathe of people. The second one, which often strikes me as a challenge for corporate venturing, is that there are many different types of corporate venturing, and it can come in many different colours and guises. Therefore, you need to be very clear about what your objectives are as a corporate venture team, and about what you are being asked to do in setting up the corporate venture team is critical.
In my view, there are three things, broadly, that a corporate venture team can do. It can do strategic insights, it can create technology access, it can create new business options, and it can do all three of those but, depending on what you are trying to do, you then need to resource that appropriately. There are many examples of where you are being asked to create a whole new business but you are only going to be given a couple of million dollars to do that. That might be a challenge and you have to do that with half an FTE. Therefore, what are you trying to do and are you resourced appropriately to do that?
Point four for me is around the internal connectivity which differentiates corporate venture teams from so much else in the venture capital industry. The internal connectivity is so essential and I am sure you all recognise that but what we do is connect what is happening on the inside of the company, what the company is thinking about and what the company needs to the outside innovation world. The better you can do that, the better you will be able to have a strategic impact inside the company. That then links to what are the type of people you need in the team.
Developing a reputation externally, as I said, there is lots of scepticism about lots of venture funds, although it is interesting how that has changed since the venture capital industry’s own funding has been somewhat squeezed that suddenly they all want to embrace corporates as their best friends to help develop some of these companies and raise new funds. Having a reputation as a company that is going to stick with the investments they make, stick with those companies and partner as a true partner with the financial venture world, because we need both of these models, is essential.
The sixth point is managing the strategic financial tension, which I shall talk more about in a moment. That sits at the heart of the whole challenge around corporate venturing: are you there for a financial return, are you there for a strategic return? The answer, of course, is both and how do we manage that: it is a both/and conversation rather than an either/or conversation.
The seventh point is that venture is a portfolio game, and eighth refers to recruitment and retention. It is hard, in my experience, to build a team that is fit for purpose and that can sustain over time. There are many reasons for that. If you are pulling people out from inside the company, typically you progress up through a corporate and you do a number of different things. Whereas corporate venturing, or venturing more broadly, requires a lot more staying power, so how do you manage that tension of individuals coming from the inside who are there for a few years and then move on? If you need the deep internal connectivity, how do you manage bringing in venture veterans coming inside a corporate, often not really understanding the mentality, culture and ethos of a corporate. Therefore, it is a real challenge and one that I would not say we ever solved.
What can CVC teams do and where do they deliver value? You can have really different conversations in my experience inside the corporate as a strategic venture capital group than pretty much any other team inside the corporate can. You are out, mixing in different circles, looking at the world in a different way to most of the teams but what you have to do is be deeply plugged into and central to the broader strategy team for that to have any impact and to move that forward. You can do a lot of experiments, you can experiment with different technology, you can experiment with different business models but, if that is not aligned to the broader technology pipeline, or the broader technology strategy, or the broader new business development platform inside the company, again your impact will be massively diminished.
My view is that the core value for a corporate venture team is around technology access: how do you complement and supplement what is going on in the rest of the technology organisation, the internal R&D, potentially other academic relationships. As is the case in BP, corporate venturing becomes another great component of an holistic technology strategy. There are many things going on in the outside world that you can plug into the corporate that other parts of the organisation cannot. That is certainly where BP Ventures is getting more traction inside the company.
However, this also drives increasing convergence with the core business. If part of the rationale for corporate venturing is to be out there looking at the frontier and at what new things may be coming over the horizon, it is quite difficult, if those things may mature over a 10-15 timeframe, to continue to do that when you have to manage this tension between the strategic and financial value
This chart is a great tool that my team at BP developed for tracking portfolio performance. Across the bottom, you have strategic potential and up the Y axis you have the financial potential of the venture, and you scatter your portfolio across that – I have just put some random dots in the space there. You are pushing towards wanting maximum strategic value and maximum financial value. What increasingly in an oil and gas company do you think we would be going for in the top right? We are going more and more where we can have the most strategic impact and the most financial impact, which is innovating and complementing the technology strategy around upstream oil and gas, so new drilling technologies, new imaging technologies and technologies that really fit BP’s core strategic purpose. Some of the things with which we were experimenting about longer term bio-energy value chains, longer term renewables, become increasingly difficult to justify, particularly in the current environment when some of those returns may be further and further out over the horizon. Some of those opportunities are increasingly difficult to justify in terms of the strategic perspective, because after six years when you have a great reputation and things are going really well, you are pushing to ensure that your team and your budget continue to be maintained, so that you can continue to drive that innovation agenda and continue to be an integral part of the technology agenda. That is a personal experience but it is a really important role. It is something that we recognise where we can add real value to what we can do with a conventional technology organisation. However, in my view, it is not a panacea for all of the challenges that corporates, or the world more broadly, are facing.
As we look forward, there are significant challenges that all corporates – this is a very western view of the world – are grappling with. There are still huge challenges around the whole sustainability agenda. For the energy sector, that means low carbon but for most sectors, sustainability is still a key issue that is out there for the long term. We are hitting resource limits. The planetary boundaries work, and if you have not seen that I would encourage you to look at it, talks about all of the planetary boundaries, not just climate change but many of the other planetary boundaries that are out there. What can corporate venture groups, what can the venture community more broadly really do to tackle some of those challenges. Cleantech promised a lot but Cleantech itself is running into some real difficulties and some real challenges in the current economic climate.
Shifting to emerging markets, what role can CVCs play in helping to establish beachheads or experimenting in many of the other markets where traditionally corporates may have struggled more? A real focus on market deployment, as opposed to the front end technology innovation: we need to understand how we bring whole new business models to the market. The last point I would make is that we need to start evolving from simply product solutions, single technologies to system level solutions if we are really going to address some of these key challenges going forward. How does corporate venturing, which has been in this renaissance, really step up and start to deliver against some of these bigger objectives and challenges that corporates are facing? Let us face it, what corporates are really looking for is growth and long-term growth at that, and return to shareholders. Having a successful corporate venture unit in the long term means how are you really enabling big new slices of growth to come into the corporate to sustain their position.
There are models out there and these are a few that are interesting. The corporate venture to corporate venture partnership models, and what Physic has done is interesting in that regard. How many of the corporate venture teams in the audience are still making LP investments? [Show of hands] There are a few still making LP investments but there is so much scepticism about why should we take an LP position in a fund, because those funds are not aligned to our interest. In my own experience of doing it at BP, it is really difficult to get that alignment, that interest. What Physic has done with two strong corporate anchors is be able to align around what some of those strategic objectives are. Most GPs are just interested in raising the fund, sitting on the management fee: I do not wish to denigrate our colleagues in the whole financial venture industry, but it can be very easy to sit and milk the management fee, because you are just pushing on that financial axis. The corporate really has to deliver the strategic as well as the financial, so how do we create models that enable us to anchor new funds in what the corporates need for the strategic interest as well as delivering financial value? Bringing the value of several different corporates together, how do we have a broader dialogue by looking at how different sectors are looking at the same issue?
As far as some of the corporate venture private equity partnership models, what Shell has done with Kenda is interesting where Abu Dhabi Investment Corporation is also a huge investor in that fund, with an interest as well in the long term for oil and gas. What Mahindra is doing in India is very interesting and, lastly, in the interests of time, there are some new incubation type models out there. I have talked about large scale deployment and moving things at a bigger scale, but how are we stimulating many of the early stage things?
There are some really interesting models and Infuse Capital is one I shall mention as it is still near and dear to my heart. This is an Indian fund for sustainable energy set up by BP together with the Ministry of Renewable Energy in India. I am delighted that IFC has just committed to that as well, and there are a couple of corporates just about to cross the line. They are finding some really interesting early stage opportunities in India, and it gives BP a great window on some of those emerging opportunities and how might you play in an emerging market such as India that has so many different energy needs to some of the traditional markets that a company like BP has served. That has been an interesting model of how you can partner to drive that.
Castrol, a BP subsidiary, and Jonathan is in the audience today, has teamed with start-up Boot Camp and have just closed its request for companies to come forward with innovative interesting ideas. Some of these companies like start-up Boot Camp and like YCombinator are doing some really interesting things at that early stage. There is a company I came across a few weeks ago called Nidus that Monsanto, Bunge and Novozymes are all invested in to pursue some very early stage things in that agriculture sector. Therefore, there are some interesting emerging models that are out there, and I shall close with a final slide.
This is an area in which I am increasingly interested, which is how do we bring the energy sector together closer to the agriculture sector, together with the food sector, because there are many common issues with which we are all grappling, and we are all seeing the world through a slightly different lens. How can we bring a group of corporates together to address some of those challenges in a way that one single corporate could not do on its own?
I have just started some conversations with a number of companies about this type of opportunity and what that could look like. What the fund structure ends up like and how you end up collaborating is still very much something that I am open to explore, but it talks to this as one nexus of where many industries come together. It talks to the model I had on the previous slide of how different corporate venture teams, how different corporates can come together to address some of these key challenges that are very difficult to address as an embedded corporate venture team, and as a corporate venture team in one single industry vertical. This is the type of work on which I am embarking now and I hope in the next few months to have more to share with you. I shall pause there and leave some time for Q&A.
Question & Answer Session
Anita Hoffmann (Executiva): Having just come back from China, and you were talking about India and the early stages, China does not really do early stage. Do you have any thoughts about how corporate venturing can work with them, because they are the most formidable scale-up vehicle we could ever see?
Justin Adams: That is a great question to which I am not sure I have the answer. However, I can give you some of the experience we had within BP, where we funded quite a lot of university research and found many really interesting university programmes going on. We then found a real challenge, a gap between how we took that out from the university and to scale. We then partnered with the Chinese Academy of Science, and you have something like 90 institutes across China, and we were working to see how we could take some of those technologies and start to scale them. That has been three years in the making and there is a centre based in Shanghai called the Clean Energy Commercialisation Centre, which is a joint venture between BP and the Chinese Academy of Science to start to explore how we can scale some of that.
Again, that has been pretty slow going and, increasingly, like many others and I am sure there are many in the audience here as well, we have started to look at how we can take technologies that we have found in the West that have some application in western markets but a potentially very large application in the Chinese market. There is a huge hunger and appetite for these kind of technologies in China, so how do we start to partner and bring some of those technologies into China. It does not solve the challenge of how you create early stage ventures in China, and we had a very messy experience that I don’t have time to talk about here now as well.
It talks a little to the ecosystem of trying to partner and develop some of these things but, increasingly, how do you bring other technologies to China that you can then scale more rapidly than in the West?
James Mawson: You described the land ecosystem, bringing together agriculture with energy. How would that work? Is it based on the planet theory you were talking about to say we are coming up sustainable challenges that we are facing, so how can we bring together different parties from outside the normal ecosystem? That seems to be quite a thought-provoking idea.
Justin Adams: The energy industry has gone more and more into land over the past few years because of the growth of bio-energy and bio-fuels. As you have done that, you run into all sorts of challenges, and challenge from others who think of themselves as the natural incumbents of the land space – farmers and the food companies who sit there and it is very easy to point the finger at the energy sector and say, "you are the guys who are forcing the price of food up!". However, as in any of these situations, the story is far more complex than that. What you need to do is start to look at where there is an alignment of interest. Bio-energy is one area where we need to thrash out some of these issues. There are billions of acres of degraded land, which it is in the interests of both the food and the energy sectors to understand how to bring more of that degraded land back into productive use, to start growing more food or more energy or more fibre. That is an area that starts to look more interesting.
As you dig deeper, you start to see that, in bringing much more of that degraded land back, the land acts as a huge carbon sink, so the land and the biomass that is on the land act as a huge carbon sink for the planet that is absorbing a lot of CO2 that is out there. Then you begin to think what can we do if we start restoring the land’s capability to absorb more carbon, and it will be a great deal cheaper if we can figure out biological sequestration of carbon than geological sequestration of carbon where you capture it off the back end of a power plant and inject it several thousand metres under the surface, and hope that it stays there for the next thousand years. That is what an engineer would typically come up with in the energy sector because that is all they are thinking about. However, if you start to think more holistically about the system, how at a system level, linking the energy sector or the high emission sector with the land sector, and understanding how different stewardship of the land may result in a far larger carbon sink, this can again create a far bigger set of value than any one of those companies or sectors can do on its own. Those are a few examples of some of the things we are starting to talk about as you have this dialogue that becomes increasingly richer the more parties you sit around the table.
James Mawson: That is fascinating and there is definitely more work to be done around that, it is a great area to be in, Justin. Please join me in thanking Justin for a powerhouse speech. [Applause] That was truly tremendous and Justin will be around for the rest of the day, so there will be the chance for more questions. My apologies that we did not have time to get to you.