Tell me about Saudi Aramco Energy Ventures and the corporate venture capital programme. What was the motivation behind it?
I lead the Aramco’s corporate venture capital (CVC) programme. The program has been running since 2012, we started making our investments in 2013, and over the past seven years we have managed to deploy a fair bit of capital into investments across 40 different opportunities.
Traditionally, Aramco has been a buyer of technology. Over the past 10 years, however, there has been a clear shift moving from buying technology to producing and contributing to technology development. Aramco has research and development centers, including the EXPEC ARC in Dhahran, as well as 12 global research centers focused on different mandates. Because technology development is important to the company, one additional avenue to pursue that goal is through the venture capital approach.
It expands the capacity of development by cherry-picking the technologies that you are interested in and helping to accelerate that development and deployment into your own operations. Aramco is looking for tech transfer, a strategic objective alongside contributing to technology development. From the venture perspective, being business savvy and looking for a return on those investments is also great, so it is a win-win for all.
Why do you focus on Europe and the US?
It is by design. When we first launched, we wanted to be in the ecosystems that are speaking to our areas of key interest. When you think about upstream oil and gas, our teams are situated in the northern shelf between Aberdeen and Norway. We also have a team in Houston. Being close to the oil and gas ecosystem as well as the startup community gives us access.
Let’s talk about your portfolio. What success stories that stand out?
In the upstream sector, we have made 16 deals. A company called Sekal, for example, that we sold recently with a great return, helps with real-time drilling decision support. As you are drilling, you are able to identify potential issues that might come up thanks to the machine learning in the software. We have a company called Inflow Control. This company has an incredible device, allowing you to stop the ingress of unwanted fluids, of gas and water during production. You are only producing the oil or the gas that you need, and that means real savings because there are fields with locked potential which can be produced again. We have deployed these technologies in the company and we are seeing amazing returns on them.
How would you describe your investment strategy?
We love to be a value adding investor. When we look to invest into a company, we start by looking at the technology, evaluating that technology and the value of that technology being adopted into Aramco’s operations, and we very quickly start putting a deployment plan in place. That is really important to some startups, because they are looking for more than capital from a strategic investor. We are a strategic investor because we bring a lot more to the table, above and beyond the money. We bring opportunities for these companies to pilot their technologies. And when they do, it is great for them to be hitting milestones with a company the size of Aramco, to say that we have tried this technology and it works.
There is also the deployment opportunity—basically the demand on that technology or service. They are already very quickly working on proving the technology, collaborating with our engineers, and having the opportunity for us to purchase and provide revenue. For the most part, we sit on the board of our portfolio companies and we try to help the company grow and think about how they can commercialize and scale.
Your investments range across the energy industry, including renewables. What is your main focus area, and has that changed since you launched?
The verticals that we started off with were: Upstream oil and gas, downstream operations in petrochemicals, and ‘renew’, which is renewables, energy efficiency, and the water sector. These have traditionally been our focus areas. Lately, we have adopted the Fourth Industrial Revolution, which includes more on the digital side, non-metallics, and sustainability. These six verticals are now our focus areas.
Sustainability is fairly new, but it is something that we are starting to see the startup community veering towards. We have invested into a company called Novomer, which captures CO2 and produces polyols, which is essentially plastics. So you are not just capturing CO2, but also using it to create products. Most of the discussions you hear surrounding CO2 capture are primarily about sequestration, but capturing CO2 and creating products is a better extension.
What are your growth and development plans?
We have made three deals in cyber security. We are looking at opportunities for smart contracts to help on the supply chain. We are looking at blockchain platforms. We invested into a company called Vakt, a blockchain platform for trading. Supply chain, trading, cyber security, and AI are more of the focus area for us now, and those cut across many different use case applications within the company.
In terms of digital, a lot of it has to do with improving decision making. We have a company called Maana out of California that is an enterprise data search and analytics company. Take shipping as an example. An individual has a certain amount of information to make a decision about whether they will send a ship somewhere, or whether to charter a vessel. Maana brings in a host of additional information, which includes weather patterns, how many knots can a vessel move, and how fast the current is. These factors are difficult to comprehend in decision making, and when you put all of that information together, you start getting a lot more efficient in terms of decision making.
Tell me more about your second $500 million fund.
When we started the CVC programme, in 2012 or 2013, when we started our investment, upstream, downstream, and renew were the focus areas, and we continued that. So far, seven years in, we are going to continue our objectives and we have added those three other verticals that I mentioned earlier. It is a continuation of the same program with these additional verticals.
We use an evergreen model. When we sell our stake in some of these companies and make a return, a lot of that money continues to support the CVC programme. It is meant to be a perpetual fund, the returns of which are injected back into new opportunities. When we sell a company and make two or three times the money we invested, then that money is able to go into two or three additional companies.
How long do you typically hold your investment in a company, and what are your typical ticket sizes?
We are looking to exit most of our companies unless there is something pretty important to take on. We are not buyers, so we do not typically buy out companies. The first fund had a $500 million allocation. In our second iteration, we are looking at a similar fund size. The ticket sizes are between $5 million, $10 million, and sometimes $15 million for a first investment. Over the years, some of these companies require more funding or follow-on investments. So we maintain an allocation for eacch company to sustain our investments until exit.
When you think about startups, Internet tech startups have a three to five year horizon, so investors will exit after three to five years. On the medical side, it takes even longer with FDA approval. In oil and gas, you have a holding period of six to seven years.
We have invested in 40 companies over the years, so we are starting to move into our harvesting stage, and we are starting to see the startups that we invested in back in 2013 becoming ready and ripe for an exit.