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Shell Technology Ventures’s Managing Director explains what he looks for from a start-up pitch, why a great management team trumps great technology and how a worthwhile investment is a mixture of altruism and commercial curiosity.
Jon Bernstein (JB): What are the objectives of Shell Technology Ventures?
Geert van de Wouw (GW): First it needs to address the cost challenges within the core oil and gas business. Oil prices are low and we’ve got a relatively expensive supply chain so we are always looking for something more sustainable. Secondly, we are going through both an energy transformation and a digital revolution. We use Shell Technology Ventures to invest in external start-ups working on innovations in all of those domains.
JB: Shell Technology Ventures operates in the context of addressing “future energy needs.” What are those needs?
GW: The demand for energy will grow as economic prosperity increases particularly in non-Organisation for Economic Co-Operation and Development countries. Some of these countries are looking towards electrification. So we have, for example, a Shell fund in Nigeria—independent of Shell Technology Ventures—that invests in entrepreneurs that have new business models and technologies to electrify parts of Nigeria. They are helping those people who have intermittent or no access to the grid. We strongly believe that economic development and prosperity starts with access to energy.
JB: Is this an example of altruism or Shell’s self-interest at work?
GW: It’s a standalone fund and the returns we make on it are being reinvested in Nigeria. So, I guess, it’s a nice mix of altruism and commercial curiosity because we like to understand how these types of business models will eventually be commercialised in the field. But yes, of course, for Shell we are ultimately looking to build a business out of this.
JB: And you talk publicly about speeding up the development and deployment of technologies “complementing our business.” How do you know which are complementary?
GW: It’s broadly defined. For example, we are interested in technologies that can dramatically reduce the cost of energy coming from off-shore wind. That’s why we are investing in a company like Kite Power Systems. It’s not necessarily something that venture capital firms will invest in because you need a lot of capital and you need a lot of endurance to commercialise it. But it works for Shell because we’re committed to the wind business—we have energy assets and an interest in bringing the cost of this energy down.
JB: Some start-ups may be complementary but others compete with your traditional business. Do you avoid or embrace those competing companies?
GW: The latter. You have to be prepared to be part of the disruptive force. You cannot ignore, for example, the electrification of the mobility space or the digitalisation of the retail space. We want to be part of that disruption and understand where it is going.
JB: Even if it means competing directly with something you do already?
GW: Yes. If we don’t do it, somebody else is going to.
JB: Shell Technology Ventures sometimes teams up with venture capital firms. Why?
GW: The VCs provide a reality check because they have a very strong capital discipline that’s focused on the shorter term. A large company like Shell is often focused on the big prize many, many years out. Therefore, we have a natural tendency to invest on the promise of longer-term value creation. And, as we know, start-ups always believe success is just around the corner: ‘Give us a little bit more money and next month you will see.’ VCs have a lot of experience managing that short-term expectation.
JB: What are you looking for from a pitch?
GW: First we want to know whether the idea will have a material impact on the energy system. Does it substantially reduce cost? Does it substantially improve access to energy? Does it substantially improve our ability to produce more with the same assets? We also focus a lot on the management team because we like to understand whether this is a team that can actually deliver. And if it can’t, what we can do to strengthen it. I fundamentally believe that the quality of the management team is more important than the quality of the technology.
JB: Great management is more important than great technology. Why do you say that?
GW: Experience. We’ve been doing this since 1997. Early on, the natural
tendency was to focus a lot on the technology and assume that the management team would be able to cope, or that we would be able to fix that later. But actually the drive and competencies of the management team really matter most. Good management teams know when and how to pivot from proposition A to proposition B. Bad management teams don’t.