The majority perception of the term “cleantech” dictates that folks often think my company, Cleantech Group, must be entirely uninterested in working with large traditional players in the oil & gas (O&G) industry. Indeed, this couldn’t be further from the truth. In fact, our data from i3 and my interview with Jean-Michel Gires, former President & CEO of Total E&P Canada and now the newest Venture Partner at Chrysalix Energy Venture Capital, reveal that the O&G industry is embracing clean technology more closely than ever before.
O&G Corporates Partnering with Proven Innovators
Cleantech start-ups often have it tough. Those developing technologies that require more capital and time to scale than traditional “tech” startups lead some investors to argue that the sector just doesn’t fit the traditional venture capital model. And, like biomedical start-ups, some cleantech start-ups often face highly-regulated or otherwise-entrenched traditional industries where innovation is slower to take root.
It is with this backdrop that we see large O&G companies as important drivers of cleantech innovation. Large balance sheets allow for impactful investments and we’re seeing more and more O&G majors starting to embrace innovation more directly with dedicated venturing arms and co-investments with industry peers (see chart at right). In the first half of 2013, this manifested in venture deals relevant to conventional energy like the $128 million investment Cenovus Energy, BP, ConocoPhilips and others made into Skyonic, a developer of carbon capture technology that will allow power plants to mineralize and resell captured pollutants as value-added materials. But we also see O&G corporates investing in other cleantech sectors. BP and ConocoPhilips, for instance, also invested in biofuels company CoolPlanet Energy Systems’ $30 million growth round during the second quarter, while the first quarter saw Canadian O&G major EnCana invest in waste-heat recovery company Alphabet Energy’s $16 million Series B round.
In addition to the monetary impact of corporate venturing, O&G majors also happen to directly control most of the existing energy infrastructure around the globe and can therefore both provide the proving grounds needed for pilot-stage start-ups, and eventually effect wide commercial deployment of new technologies.
These critical industry partnerships are nothing new. In 2012, for instance, we witnessed how fruitful these long-term relationships can be when, in the closely-related petrochemicals industry, Dow Chemical acquired Clean Filtration Technologies – a company started in 2006 to develop a self-cleaning membrane filtration system to process wastewater. The company had raised $5.5 million privately from investors including Dow Venture Capital, and Dow’s Water & Process Solutions business unit had been brought in as a technology development partner in 2010. In 2011, Abakan’s acquisition of advanced coating materials company MesoCoat provided an exit to investors including Cleveland’s JumpStart venture evergreen fund after MesoCoat partnered with Petrobras earlier that year to test the company’s coatings on O&G pipelines.
We know from our conversations and relationships with oil & gas executives that traditional energy companies have long since moved past initial skepticism of renewable energy sources and sustainability initiatives. They see value in diversifying the world’s energy mix and want to be players in – not bystanders to – the march of energy innovation.
An Industry Veteran Bringing Expertise to Early Stage Cleantech
Such was the key takeaway from a recent conversation I had with Jean-Michel Gires, the new partner at cleantech venture capital firm Chrysalix Energy Venture Capital, mentioned above. In addition to leading the French giant’s development of oilsands assets, Gires was in charge of sustainable development at Total, and spearheaded the creation of the corporate venturing team now known as Total Energy Ventures. “It was difficult convincing executives but eventually everyone got behind it,” said Gires. “Oil and gas are facing tough challenges – trying to face tough issues, tough compliance. Assets are more difficult to develop and produce. So we need to find new external innovation for the oil and gas sector, but also other solutions from other sectors.”
This need to find and embed external innovation – something Cleantech Group frequently helps our clients address – was also a reason Gires gave for his decision to make the jump from Total to Chrysalix. He is bullish on the O&G industry’s embrace of technological innovation, but concedes that big companies find it difficult to play at the early stage.
“Corporates are good at later stage, lending engineering advice and field testing,” he said, “But if you want to understand external innovation…you should find a better tool. Corporates often want to control everything they do… and [because of that] they can easily end up destroying that which they set out to create.”
One of the reasons I was most interested in speaking with Mr. Gires is that his move from a position of leadership at one of the largest traditional O&G companies to cleantech venture capital could well be a bellwether for the sector. VCs have already made a significant pivot in recent years toward conventional energy (see chart). Concurrently, as demonstrated in the first half of this post, O&G corporates are partnering with and investing in growth-stage cleantech startups more than ever before. Now, the transition of O&G industry veterans like Gires into partner roles at cleantech venture firms is bringing deeper expertise to early-stage technology support, and can only serve to bolster start-ups’ chances of being successful. As Gires put it, it’s often about “identifying [a start-up’s] sweet spots” in niche markets. And that’s a challenge that someone with Gires’ experience is particularly well-suited to help navigate.
Chrysalix plans to start raising its fourth fund this fall, so watch for news on that, as well as the firm’s future investments in oil & gas, water, mining, chemicals, and other cleantech applications, on the i3 Platform.