Chemical corporate venture capital gets interesting

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This blog accompanies the LEIF programme on advanced materials venturing, which is sponsored by Saudi Aramco Energy Ventures (SAEV). A report on advanced materials venture investing, which will be written by LEIF and Global Corporate Venturing, will be launched at an invitation-only event in London on March 26th where SEAV’s Richard Riggs will be one of the main speakers. He will set out Aramco’s advanced materials venturing strategy. Other speakers will be announced soon. Please contact me if you’d like to sponsor this programme or just attend the event.

For an industry that is traditionally seen as conservative and let’s be honest, a bit dull, the chemicals industry is certainly heavily involved in some remarkably cool venturing activity. German chemicals venturing stalwarts BASF and Evonik lead the way. Global oil and gas corporate venture capital is catching up.

When we think of oil and gas corporate venturing we tend to think only of upstream technologies. But their strategic needs in their downstream chemicals businesses are just as compelling. They are doing more deals here and the technologies being backed are surprisingly clean.

BP, Conoco Philipps and Saudi Aramco have all recently backed companies commercialising catalyst technologies that seek to create value from carbon dioxide and thereby help make its capture more economically attractive.

In September, Liquid Light, a US company that uses low-energy catalytic electrochemistry to convert carbon dioxide to chemicals, received a follow-on investment from BP in its $15m series B round. BP is also an investor in Skyonic, which is also a catalysis-based technology business. It creates minerals from C02 and also has ConocoPhillips and Canadian energy company Cenovus among its investors. In May Skyonic announced a $12.5m investment from Conoco and EnBridge. Late last year, Aramco invested in Novomer, another US catalyst technology business that converts C02 into polymers.

Outside of chemicals, oil and gas, which other industries could join this chemicals venturing party? We’ve had ICT venturers seeking synergies and therefore investments along the value chain to health care and smart cars and homes. Could they go as far as chemicals?

“I wouldn’t be surprised to see handset and tablet manufacturers look very closely at corporate venturing opportunities in chemical innovation,” says Neil Foster, the corporate venturing partner at law firm Baker Botts, which counts ICT and chemicals businesses among its clients. “The innovation they need to stay ahead of their competition may derive from specialty chemicals and advanced materials for LED, touch screen technology and batteries and not just semi-conductors, content and software.”

Dow Venture Capital, the venture unit of the eponymous US chemicals giant, has anticipated the need for innovative chemicals in LED lighting through its investment in, and subsequent acquisition of, Lightscape Materials, a US developer of novel phosphor solutions for LED lighting. Dow sets out the strategic rationale on its website thus: “Dow’s investment in this technology aligns to the strategic growth interests of the Dow Electronic Materials business which has been an important player in the solid-state lighting market for over 35 years”.

What’s the evidence for handset and tablet manufacturers entering the fray as Foster suggests? Samsung Ventures is a shareholder in NYSE-quoted Bioamber, which produces bio-based chemical substitute for petrochemicals. But Bioamber does not look like an advanced materials business gravitating towards screens and lighting. There are no chemical innovation technology businesses in the portfolios of Microsoft Ventures, Google Ventures or Nokia Growth Partners. But one very compelling reason why this is likely to change is the growth of the market for flexible displays for future smart phones, computers, roll-up televisions, reusable electronic newspapers, electronic wallpaper etc.

The crucial element in flexibly displays is transparent conductive electrodes which currently require indium tin oxide (ITO), a very expensive metal. “If you’ve ever questioned why your smartphone has a sticker price of over $500 – you can blame ITO in part as it can account for up to 40% of touch screen production costs,” says Sarah Applebaum of Pangaea Ventures, the Vancouver-based venture investor backed by several chemicals companies including Evonik and Asahi Kasei. Applebaum cites “6 main contenders” to replace ITO: “silver nanowires, carbon nanotubes (CNTs), metal mesh, graphene, conductive polymers, and other transparent conductive oxides (TCOs), which are largely doped zinc oxides.”

Such advanced materials are going to require chemical innovation and venture investment to match. Catalyst innovation, particularly where it involves cheaper cleaner conversion of low cost materials to high value materials, is a growth area and is already well served by chemicals and oil and gas investors. Chemical innovation focused on smart materials is currently served by relatively few corporate venture capitalists. But that may just be because the deals are in the pipeline.

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