Access here alternative investment news about BP Ventures Approaches Investing With 'Collaborate Now, Compete Later' Mindset | David Hayes, Chief Investment Officer & Managing Director | Q&A
LPNEWS

BP Ventures Approaches Investing With 'Collaborate Now, Compete Later' Mindset | David Hayes, Chief Investment Officer & Managing Director | Q&A

by trusted insight posted 1month ago 1038 views
David Hayes is the chief investment officer and managing director of the Americas for BP Ventures. David brings 17 years’ experience in finance, including 10 years in venture capital investing, specializing in transaction structuring. He sits on the boards of Xpansiv CBL Holding Group (XCHG), Fulcrum Bioenergy and Calysta and previously served on the boards of Lightning Systems, Chromatin, and Mendel Biotechnology. David holds a B.A. in accounting and management control from Sheffield Hallam University. He is a Fellow of the Association of Certified Chartered Accountants (FCCA).

In this interview, he discussed how BP Ventures invests in tech that can be deployed in their own business; the importance of collaborating with corporate venture peers such as Shell; and why they seek a board seat on every investment they make.

David Hayes was named on Trusted Insight's 2020 Top 30 Corporate Venture Capital Investors

Trusted Insight: What is BP Ventures? Tell us about your experience there as CIO and Managing Director.

David Hayes: BP Ventures has been active for about 12 years having started investing in 2007. At the time, we focused purely on alternative energy. We were essentially a startup within a startup in BP. We had a slightly different model then as we were investing in hedging technologies. While our business was focused on monocrystalline PV we looked to thin film technology. While BP Biofuels was investing in LC ethanol, we were looking at different pathways and different types of biofuel. After 5 or 6 years, we evolved our approach to focus on our now former upstream and downstream businesses.
 

"We're a strategic investor first and foremost, so we invest in technologies where we can deploy that technology in our business."


Now we're in our almost fourth iteration of the group. Before BP’s Ambition announcement in February 2020, we invested across our core upstream, downstream, and renewables businesses, as well as five new energy frontiers: They are advanced mobility, low carbon power and storage, carbon management, bio and low carbon products, and digital transformation. Additional areas we were exploring for this year include hydrogen, land carbon, and city offers. I believe that we will be a core part of the Innovation and Engineering group, announced in February. I expect the breadth of our investments will continue to increase.

Right now, we're a team of 16 people. We are planning to be closer to 20 by the end of the year. We're currently split between San Francisco, Houston, London, Shanghai, and Singapore. Then we have a couple of consultants on the east coast of the U.S., and Israel.

We've invested around  $700 million to date and $300 million of that was over the last two years. That's reflective of the pace and scale of investment activity we want to see going forward.

Trusted Insight: You've been with BP for nearly 18 years now. How do you see the venture unit evolving in the next 5-10 years?

David Hayes: That's a good question, and slightly hard to answer. BP recently announced its ambition to get to net-zero by 2050 or sooner. We will be coming back to the market in September with a firmer plan of how we will deliver this, but what we do know is that BP Ventures will play a key part.

We're a strategic investor first and foremost, so we invest in technologies where we can deploy that technology in our business. We also invest where we can play a material role in the value chain of bringing that technology to market. I believe the three models of venture are for learning, for access, and for M&A. I believe we can use all three models as we look to scale and grow new low carbon businesses.

Our BP Launchpad group was created about 14 months ago, and they’re the private equity to our venture capital. BP now has the ability to take more material ownership stakes in companies and look to grow them at pace to full businesses.
 

"We've invested with most of our energy CVC peers including Shell. Our mentality is often: Collaborate now, compete later."


BP Ventures will continue to be a minority equity investor, and BP Launchpad will aim to take majority stakes. We have already seen our first company transition from BP Ventures to BP Launchpad. There are a lot of synergies in the skillsets we have built-in Launchpad and BP Ventures, and we will work together to find technologies that may not be scalable for a number of years.

We don’t only pursue incremental near-term technology, we’ll continue to invest at the frontier in technologies that may not be seen as obvious for an energy company. I would say investments like the one we have made in Calysta are slightly unusual for BP. Why would BP want to be in the aquaculture and fish food market? We are doing it for the gas side of things, but it's one of the eyebrow-raising deals from BP Ventures that I'd like to do more of.

There are multiple ways to benefit from BP’s energy expertise, the vast wealth of technical capability within the company, and actually use these to address other verticals. I think there’s agriculture, building products for construction, and many other areas where BP Ventures could help leverage our capabilities and experience in other industries. For example, we considered an investment in vertical farming. Not necessarily for the end produce, but in tandem with how we are growing our renewable electricity portfolio. Lightsource BP, which is our material solar play, is looking to grow from a couple of gigawatts to 10 gigawatts over the next five plus years. We considered a value chain play that connected the dots between the BP gas being used as a feedstock at a Calysta protein plant and with the CO2 from that plant and renewable electricity from LSBP going into a vertical farm to produce greens at a lower carbon footprint, with much less water. Now that didn’t work out, but there are similar value chain plays we’ll consider.

Trusted Insight: You have probably heard your CVC peers discuss co-creation strategies. What are your efforts when it comes to that department?

David Hayes: We're a collaborative investor. We've invested with most of our energy CVC peers including Shell. Our mentality is often: Collaborate now, compete later. Technology has always been an area where energy companies actively try to collaborate because the business, we're in is inherently challenging. We are not afraid to co-invest with other energy and material companies. It's just a smart way of doing what we do. I would say BP Ventures is very well attuned. We work very carefully with our business unit in creating commercial relationships with BP and startups to make sure that it's a win-win situation.
 

"BP Ventures is very active on the portfolio management side of things. It's our aim to take a board seat on every investment we make."


Whenever exclusivity is used, we create a scenario where it can only be kept if a performance requirement is met by BP. We're very conscious of that and that only gets more complicated when there are more parts of the value chain around a particular deal. BP Ventures is very active on the portfolio management side of things. It's our aim to take a board seat on every investment we make. We've had to make concessions in the past, but I don't think we would do that going forward.

Trusted Insight: Many CVC groups have their much larger parent company that has robust cash flows. Does your venture group take third party capital or considering using outside capital?

David Hayes: We've looked at the venture model a couple of times over the last 12 years. We have, in the past, explored models that involved taking capital from external sources, but that has died down considering the capital commitment from BP to the ventures group.

If that capital frame were to change then maybe, we would need to consider external sources of finance. For now, investing off the balance sheet is the best way to proceed. In our analysis of other models of taking capital, you get into that tricky space of how to keep strategic alignment and value for the parent. I think that becomes more challenged if you're not as closely aligned with a global or group strategy.

One thing we've worked hard on over the last few years is when we make an investment, we ask “how do we quantify the strategic value to BP?” We've probably become world-class in being able to quantify and report the strategic value in ‘dollars on the P&L’ terms delivered to BP from venture companies. The value that we help create for BP is much more about the strategic value than what we might return from the sale of a company. That just doesn't move the needle for BP. Deploying this technology internally at scale can really be transformative.

Trusted Insight: Have there been challenges or hurdles faced investing through the lens of a larger traditional player like BP?

David Hayes: That's a really good question. Follow on capital as a corporate has historically been a challenge. There are a number of corporates out there that think they can get away with a ‘one and done’ sort of investment. I disagree with that hypothesis. It used to be the case with BP Ventures, that follow on investments have to go back to the investment committee, which obviously creates a risk for you as the team, that when you've done series A, series B, and then you "need series C." When that CVC capital is rejected, it leaves a stranded asset to you as a venture group. It exposes you to the risk of pay to play.

When you are a recognizable name on the cap table of an early-stage company and, if you're not following-on, folk don’t believe that’s because of your strategy they assume there is something wrong with the company. We've managed to land in the right way where all follow-on decision making is actually taken directly by the ventures team, not the investment committee. I think it safeguards our ability to continue to support the company through the difficulty that venture companies typically face. I would consider that a win. I see it as part of that competitive advantage for BP. For a company, that means that as long as you perform, we will be there to get you to a point of exit. We're not a ‘one and done’ shop.

In the first few years of investing, we were somewhat ownership percentage agnostic. We were okay investing for 1-3% of the company, and we'd also be happy taking an observer seat,. We had a much smaller budget, so we took lower stakes. The lesson we've learned is actually being on the board, and therefore likely having a greater than 10% ownership is actually important. We take portfolio management very seriously. If you have a BP Ventures member on your board, that means that through their performance contract you've got up to a day a week of that person. That might include help fundraising and reviewing your investor deck before you take it out to market. It can also mean helping hiring executives into the team. We have to be more than just money for our portfolio. The BP Ventures offer is broadening from just having a board member to having support for the communications, marketing, and even advisory around safety, IP strategy, and digital security.

It’s important to have a board seat and be able to influence the direction of travel. BP is a giant company, translating some of the lessons learned at the Group level to a portfolio company is key. One of the other competitive advantages is that whenever we have an investment, the board member has a shareholder rep essentially assigned to them. That board member can stay free and clear from the fiduciary duty perspective. The shareholder rep makes all the decisions around following on and support for the company. This means that there can be absolute trust and transparency that your board member is your board member for the company and that BP is your shareholder and they will make their own decisions.

View our full catalog of interviews here

The full list of 2020 Top 30 Corporate Venture Capital Investors can be found here
top-30-university-endowment-rising-stars-L51-cover