Geert van de Wouw, Managing Director of Shell Technology Ventures.
Geert van de Wouw, Vice President Shell Ventures.

Are investors more reluctant to invest in cleaner-energy technologies than in internet-based companies, for instance? If so, why?

In the early 2000s, when companies like Google and Amazon were in the start-up phase, they were a digestible proposition that came with shorter development times. Building ventures in the energy industry, however, takes far more time and capital.  

Energy is needed for almost every aspect of modern-day life, from transport and cooking to heating and manufacturing. Scale is important. But the problem with scale is that it can be expensive and hard to reach in the energy industry.

This is what sets energy apart from the traditional technology sector. Apple, for instance, has the luxury of rolling out the latest version of its iOS software to millions of customers in a matter of days. In contrast, it can take between six and ten years to reach an equivalent scale in the energy industry.

How do these challenges affect the appetite of investors?

Historically, many venture capitalists appeared to underestimate the effort involved in investing in the energy sector. Today, I think what I would call the professional investors have remained, while the inexperienced optimists have left the building. The ones that have survived, or re-entered the market, are now more experienced and clear-minded about what they are looking for.

There appears to be less appetite for projects that require vast amounts of capital expenditure or infrastructure, such as costly pilot plants. And many investors are moving more towards the digital space. Companies are far likelier to secure funding for a smartphone-controlled energy-efficient thermostat, for instance, than the next wave of unproven technologies to capture and store carbon dioxide.

Do you see smart- or clean-energy start-ups achieving the kind of household familiarity of internet brands like Facebook?

Yes, absolutely. Look, for example, at the ride-hailing app Uber, which gives an insight into where transport and mobility is moving.

Electric car company Tesla is another household name. It is riding the clean-tech wave with ambitious manufacturing targets for 2018. Nest Labs, the US smart thermostat and smoke detector, made global headlines when it was acquired by Google for $3.2 billion in 2014.

Turning to your job in particular: what to you is a good idea?

Shell Ventures invests primarily in three areas: oil and gas technologies, renewables and information technology.

For an oil and gas idea to be attractive to us, the technology has to reduce the cost of Shell's operations. We have to be assured that if we invest and deploy that technology at scale, then it will deliver substantially to the bottom line.

We recently invested in a US, Austin-based firm called Veros Systems. Their technology predicts potential mechanical failures of engines powering pumps and turbines months before they might actually happen. This can save Shell substantial costs. For example, if we can predict that an electrical submersible pump in a deep-water well will fail in the next two or three months, we can ensure it is replaced in time and avoid an unplanned stoppage of several days or weeks, which can cost more than a million dollars every day.

In renewable technologies, we are interested in companies that are disrupting the traditional way of doing things. For instance, we have just closed an equity investment in a California-based company called Growing Energy Labs (Geli) which provides the software to design, connect and operate energy storage and microgrid projects. Geli can connect electricity generated by solar panels on your roof with electricity from a conventional gas-fired power station 50 kilometres away and link it to a battery system in your cellar.

Pitching to venture capitalists: geert's top three tips

Tip 1

Be a cheaper solution to an expensive problem

Your idea has to address a significant problem or challenge in our industry. It needs to demonstrate value when deployed at scale and it needs to be scalable.

Tip 2

Don't bank on mum and dad

We need to see a strong suite of other investors. If none of the current investors have experience in growing small companies, or if they don't have enough money to fund the company for the longer haul, that rings warning bells. Ideally, your investors will include reputable venture capitalists and a couple of strong strategic investors who can also be your first customers.

Tip 3

Have a tapestry of different talents in your team

We will ask of your management team: Do they know how to grow companies? Can they combine creativity with business acumen and resilience? Have they looked beyond the technology and identified talent in sales, marketing or procurement to get their products into the market and drive down costs quickly enough?

How many potential deals does Shell Ventures evaluate each year?

We receive about 500 proposals every year and take around five forward. So that's just 1% of all the proposals we see. Then there is a further 10% of the total in which we don't invest directly, but where we put the company in touch with other departments inside Shell that might consider using their technology.

How do you measure the return on your investments?

We measure the potential cost savings to be made by deploying the start-up's technology at scale within Shell or by our customers. We also need, at least, to return the total value of the initial investment, and ideally more.

We always invest in partnership with other venture capitalists. For them, the only opportunity to make a profit is when they exit a company. For Shell to be an attractive partner, I must ensure that our goals are aligned and that Shell Ventures also seeks to maximise the return on investment at the exit stage.

Has the nature of the products and businesses that you bring to market changed over the years?

The shift is tangible. Four or five years ago we focused on hardware, equipment, power electronics and control systems. We have invested in Aquion, a US saltwater-based battery company, a Dutch offshore wind firm called 2-B Energy and Principle Power, a floating wind company with offices in Portugal, France and the USA. All of these were distinctly hardware-based.

Now, as renewable-energy technologies such as solar photovoltaics are maturing, start-ups are focusing more on systems and software that give more control to customers. We are also seeing start-ups developing new business models around distributed energy and storage. These are new companies intent on disrupting the old order of things. For us, they're increasingly attractive propositions.

Geert van de Wouw spoke to Kunal Dutta

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