Capital Series: Bruce Niven, Aramco Ventures
This episode is part of our Capital Series hosted by MCJ partner, Jason Jacobs. This series explores a diverse range of capital sources and the individuals who drive them. From family offices and institutional LPs to private equity, government funding, and more, we take a deep dive into the world of capital and its critical role in driving innovation and progress.
Bruce Niven is the Head of Strategic Venturing at Aramco Ventures. Aramco Ventures is the corporate venturing arm of Aramco, a world-leading integrated energy and chemicals company. As of 2022, it was the second-largest company in the world by revenue. It also has both the world's second-largest proven crude oil reserves at more than 270 billion barrels and largest daily oil production of all oil producing companies.
Bruce joined Aramco Ventures 11 years ago to build the corporate venture program. He led the design of its first $500 million fund and has since expanded to include three funds totaling 3 billion in assets under management. The venture unit has done close to 200 transactions, deployed more than 30 technologies, and has three exits. Late last year, it launched a $1.5 billion sustainability fund that Bruce manages.
Jason and Bruce have a great discussion about Aramco's history and future, plus Bruce's personal venture journey. We talk about Aramco Ventures, what they look for in investments, how they think about strategic fit versus returns, the types of technologies that Bruce and Aramco Ventures find exciting, and what founders might expect from working with Aramco post-investment. Enjoy the show!
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Episode recorded on Nov 29, 2023 (Published on Jan 24, 2024)
In this episode, we cover:
[3:31] Overview of Aramco and Aramco Ventures
[6:18] Bruce's personal journey and background in venture capital
[8:42] Aramco Ventures' investment focus and priorities
[10:31] The role of fossil fuels in past, present, and future energy systems
[14:22] The importance of energy abundance and the transition to cleaner technologies
[21:54] Aramco's priorities in the energy transition and the role of venture in fulfilling its objectives
[23:30] Aramco Ventures' interest in disruptive technologies
[28:15] Strategic fit versus returns in Aramco Ventures' investment decisions
[30:52] Aramco's role in the capital gap for early-stage startups and the need for project financing
[39:34] Addressing concerns and criticisms of the oil and gas industry
[42:28] The need for a mature accounting system for measuring emissions and the challenges in the current regulatory environment
[46:47] Ways for listeners to engage with Aramco Ventures
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Jason Jacobs (00:00):
Today on the MCJ Capital Series, our guest is Bruce Niven, executive MD Strategic Venturing at Aramco Ventures. Aramco Ventures is the corporate venturing arm of Aramco, a world-leading integrated energy and chemicals company. As of 2022, it was the second-largest company in the world by revenue. It also has both the world's second-largest proven crude oil reserves at more than 270 billion barrels and largest daily oil production of all oil producing companies. Bruce joined Aramco Ventures 11 years ago to build the corporate venture program.
(00:36):
He led the design of its first $500 million fund and has since expanded to include three funds totaling 3 billion in assets under management. The venture unit has done close to 200 transactions, deployed more than 30 technologies, and have three exits. Late last year, it launched a $1.5 billion sustainability fund that Bruce manages. He plans to focus on seed stage investments in a smaller number of growth venture equity deals. The fund will eventually have between 70 and 80 portfolio companies.
(01:07):
We have a great discussion in this episode about Aramco's history and future, about Bruce's journey and how he found himself doing the work that he's doing. We talk all about Aramco Ventures, what they look for in investments, how they think about strategic fit versus returns, and we also talk about what types of technologies are most exciting to Bruce and Aramco Ventures and what founders might expect from working with Aramco post-investment. I hope you enjoy this one and learn a lot like I did. But before we start.
Cody Simms (01:41):
I'm Cody Simms.
Yin Lu (01:43):
I'm Yin Lu.
Jason Jacobs (01:44):
And I'm Jason Jacobs and welcome to My Climate Journey.
Yin Lu (01:50):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (01:55):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs (02:06):
Okay, Bruce Niven, welcome to the show.
Bruce Niven (02:11):
Thank you, Jason. Good to talk to you again.
Jason Jacobs (02:14):
Yeah, nice to speak with you. I've been excited about this one for a while. I've also been nervous about it because obviously Aramco, I think, I heard you say before publicly that you're responsible for managing one in every 10 barrels of oil globally and historically something like 4% of greenhouse gas emissions.
(02:33):
At the same time, you've been responsible for powering a large chunk of what makes our global economy run and so much goodness that's come from energy and the world that we live in. And obviously you also can play an important role in the transition as well. And so I think this is a really important discussion and it's one that I don't take lightly and I'm so honored that you're making the time to come on our little show.
Bruce Niven (02:58):
Thank you. Some of the points you made, they're the reasons why I'm here really. You're right. Aramco produces about one in 10 barrels of oil, has a central role in the global energy system. And the world needs to continue to power society while it manages that transition to greenhouse gas-free energy. And you can't just turn the switch overnight. These are things that are done that are massive scale. Aramco in particular amongst oil and gas companies have an important role to play.
Jason Jacobs (03:31):
Yeah, we can get into some of this later, but I think there is a tension between being patient and pragmatic and understanding that it is a transition and just that we don't want to go backwards. Energy brings a lot of good in the world indisputably, but also can't be an excuse to drag our feet forever as a society, not as any company specifically. That's a hard balance and it's one that we struggle with every day. To kick things off, maybe just give an overview of Aramco and of your group, Aramco Ventures.
Bruce Niven (04:00):
Yeah, so I think Aramco is a bit better known now around the world than it was a few years ago, but it is the sole oil and gas producer in Saudi Arabia, so it manages Saudi Arabia's hydrocarbon assets. It is the single largest oil and gas producer in the world. As you mentioned, about one in 10 barrels of oil. It's also a substantial gas producer. Mainly that's used domestically, so not exported today. It's the world's most profitable company currently. I think about 120 billion or so in net income last year.
(04:36):
Massive financial resources. Its huge influence in the global energy system. Critical role it plays in the economy of Saudi Arabia and the region as a whole as well, and what the company does is also very important for people who live in this part of the world, as well as the global picture. It's maybe interesting to talk a little bit just about how the company has evolved over the last 30, 40 years. It's changed quite a lot from being really an upstream asset manager you could say 40 years ago over that period to now we're a globally integrated energy and chemicals company.
(05:16):
The top five producer of chemicals, as well as largest oil and gas producer. It's got a network of downstream refining retail positions in a number of markets around the world and has invested an awful lot over the last 20 years in its technical capabilities. There's over a billion dollar a year spent now on R&D, much of which goes into sustainability. Majority, in fact, goes into sustainability at this point in time. I work in the venture group, so Aramco Ventures. Actually joined the company 12 years ago when Aramco started its program.
(05:49):
That's now a $3 billion venture program, of which half is designated for investments in climate related technologies. So the company has been substantially investing in that and in its overall technical leadership in the industry to the point where it actually is one of the more technically sophisticated players within the oil and gas industry. And technology, of course, is a really key part of the solution to this problem. It has to be technology enabled solutions.
Jason Jacobs (06:18):
And Bruce, maybe just talk a bit about your personal journey. What led you to doing the work that you do? What led you to working in energy, and what led you to Aramco? In no particular order.
Bruce Niven (06:31):
It's a slightly circuitous journey, but engineering and business background. Graduated in the early '90s, which is a long time ago now. I actually started my career in the wireless telecoms business in the '90s in boom time in the UK working for a little boutique strategy consulting firm that had been founded by a successful entrepreneur, so a couple of guys actually who had founded one of the first cell phone manufacturing companies in Europe out of Sweden. Sold that to Nokia for 80 million pounds or so in the early '80s.
(07:01):
So that was actually a big deal back then and there weren't too many of those in Europe. So that got me interested in entrepreneurship and venture. That was the '90s, which was the boom time of cellular. I mean, the six years I was there, I think the UK went from 7% of people having a cell phone to 70. I left there to do my own startup. We were trying to build a multi-person events platform on smartphone, web, and TV back in 2000, about 22 years ahead of it's time I would say.
Jason Jacobs (07:32):
Yeah, I was going to say someone should build that now.
Bruce Niven (07:34):
There was a lot of learnings there. It didn't get too far. We'd built something and we launched something, but that was about as far as we got. I moved to California 2001 to see how all this was done. My wife is American, so went over to Southern California actually and ended up working for one of the big Japanese trading companies who were setting up a venture group that was originally doing defense technology commercialization, so real kind of Star Trek stuff.
(07:59):
That morphed into more of industrial technology and then clean energy focus in the cleantech 1.0 boom and bust in the 2000s. I'd actually grown up as a son of an expat engineer, lived all around the world, and I spent about 10 years in the Middle East growing up. So when Aramco was looking for someone to come and help set up their corporate VC group, I'd been doing corporate VC at that point for eight years, a good chunk of it in energy. I'd lived in the Middle East, and it was a great opportunity.
(08:29):
And the chance to come to a company like Aramco that has so much influence that what it does is going to matter very, very much in the future of the energy transition, that was an opportunity that I really couldn't turn down.
Jason Jacobs (08:42):
And you said that when you joined 12 years ago, it was right at the beginning of having this venture unit. What was the reasoning for having the venture unit? What was the initial charter, and what was the pitch for you to come on board and help build it?
Bruce Niven (08:59):
I mean, it started out I guess as what I would term a pretty typical corporate venture group, so really investing into technologies where we could see the opportunity to deploy in the company and get strategic value. So it was not necessarily sustainability focused in the early days. Did do some things in those areas. We did a couple of water investments, for example, which is obviously a critical issue in this part of the world, but it was also doing catalyst technologies and things that could improve the operational efficiency.
(09:30):
I would say that over time the focus has really changed, particularly over the last six years. It's really sustainability and digital technologies. And then last year, we really ramped up the program with the launch of our new sustainability fund, so that's $1.5 billion that's dedicated to technologies that can address the climate issue.
Jason Jacobs (09:50):
And I definitely want to get more into the role of ventures generally and, of course, how it fits into the broader organization. Maybe it's worth before we do just taking a step back and talking a bit about the landscape more generally, and I'd also be curious just to get your thoughts on how you think about the problem of climate change and the energy transition.
(10:13):
So maybe we can start there and I've had all kinds of guests on the show with all kinds of different perspectives. Stepping outside of Aramco and I'm just talking to Bruce now, how do you think about the role of fossil fuels looking backwards and how do you think about where we sit today and what that means for the future?
Bruce Niven (10:31):
I am concerned about the problem, let me say that, from a personal perspective. I'm also let's say an optimist about the ability of humanity to overcome these challenges and the ability of technology to deliver solutions. And I think one of the things about the energy industry is it's such a massive system. It takes a long time for technologies to incubate to the point that they can be competitive against commodity energy markets. And then it takes a long time to transition the infrastructure as you retire generations of power plants or whatever it might be.
(11:10):
So it appears to move slowly, but that is the beginning of an S-curve. And so it will accelerate and I think that we will ultimately actually be able to decarbonize our energy system and more broadly our social systems to a very large degree. I would actually argue that that is very well underway already in electrification of the power grid with renewables, electric vehicles certainly in light duty. That is going beyond the bottom of the S-curve and starting to really ramp at this point.
(11:44):
The bigger part of the challenge is how we address the harder to decarbonize sectors and other areas of our economy like agriculture, forestry, food that have an environmental impact to our cities, et cetera. That is trickier and those technologies are earlier on in those journeys. And actually in the oil industry in particular, oil as opposed to gas, oil is really playing and it's used predominantly in transportation besides producing chemicals. But as something that's combusted, it's used in transportation.
(12:17):
Transportation tends to be one of the harder to decarbonize sectors of the economy, particularly when you look at heavy duty transport, aerospace, marine. But I am ultimately optimistic that we can solve these problems. Are we going to get to the UN targets by 2050? I'm not sure we'll get there by then. I think it will be ultimately solved. I think there will be consequences of climate change and there will have to be some level of adaptation. I think the important thing is that you can't really predict how the planet is going to react to this stress.
(12:53):
You have positive feedback systems, you have negative feedback systems, and there's always a chance that you could get a runaway positive feedback loop. It's worth the investment to ensure against that. It's kind of the way that I view the whole big picture.
Jason Jacobs (13:08):
I'm curious, it's almost like the further away you get from the Saudi Arabias or the Houstons or places like that, the more you get people who don't appreciate how important energy abundance has been, nor do they appreciate how much pain the world would be in if you took it away, nor do they appreciate how unrealistic it is to think that society is going to go back to living in caves and reading by the light of a fire. But at the same time, the scientists seem to think that essentially if we keep on as we have been at the pace that we have been, that we're essentially driving off a cliff in slow motion.
(14:00):
I guess given that, it's almost paralyzing at least for me to think, well, what do we do about that? Because we're not going to change how we live, but yet we need to change how we live and we'll just fry until it gets so bad that we realize, oh crap, we actually need to move a lot faster than we have been. I don't know if there's probably a question in there somewhere. Maybe just react to that. What's happening in Saudi Arabia?
(14:22):
What's happening with the people and families whose livelihood, oil and gas, has been for so long? What are you seeing? How are they thinking about the problem? How are they thinking about the future?
Bruce Niven (14:33):
I mean, there's quite a lot in there to unpack, but I would say that first of all, I don't think people always realize just how foundational energy supply is to our way of life. If you don't have the energy rich fuels that we've had since we started using coal 200 years ago, our development from the Middle Ages and the Renaissance would never have happened. It is absolutely fundamental to our way of life to have that energy abundance, and fossil fuels are a miraculous product. They're transportable.
(15:03):
They're energy dense. Once you figure out how to get them out the ground, they're not that expensive. And so really our modern society is based on those in many ways. And one thing that I think is really important to note is all the growth in energy demand is going to come in the next 30 years from the developing world. The OECD energy demand is going to be flat or declining. They've figured out how to implement more efficient systems and it's past its peak.
(15:31):
The growth is all coming from Africa, India, Asia, and those people want the life that we have in the developed world, and kind of rightly so. You can't argue against that. And so that then causes this huge political tension about who pays for it. That to me is actually one of the fundamental challenges. It's a political question as much as it is one of technology or will. I think that people have varying degrees of concern about climate change around the world. I think that's increasing overall, but it's not.
(16:05):
Europe is probably the most concerned about it. Some places elsewhere in the world, people are less concerned. But I think overall, that's changing and moving in a direction where people are increasingly needing to feeling solutions need to be found. I come back to being a technology optimist. I actually think that technology by the second half of this century is going to deliver clean energy abundance to the planet. We've already in Saudi, Arabia got before increase in interest rates, we were getting bids for solar projects for 1 cent per kilowatt-hour, some of the lowest in the world.
(16:40):
That is lower cost electricity than you'll get anywhere from fossil fuels. It was 2011 I think where solar installations in Italy started to become competitive with fossil without subsidy. We're well beyond that in most parts of the world now. So electrification of the renewable electricity is well underway already. And then there could be other solutions like Next Generation Nuclear, which can also give you quite abundant energy supplies over the next few decades. And I think that energy abundance is also going to be needed.
(17:13):
If you think about how the world is going to look in 30 years with AI cloud computing, the amount of energy that might be consumed by those kinds of systems could be a very large chunk of what we use. So the demand picture could also change quite radically from what it looks like now. And we need those technologies to be able to supply that if we want to have those things too. So I think that answered some of your question.
Jason Jacobs (17:38):
I think what I'm hearing from you is that in any scenario, energy abundance is paramount because the world will demand it. And given that, is it in the world's best interest to transition as quickly as we can?
Bruce Niven (17:55):
There's many answers you could give to us quickly as you can.
Jason Jacobs (17:58):
Well, we'll get into how quickly you can after, but just more of a philosophical, is it in our best interest to transition as quickly as possible?
Bruce Niven (18:08):
Yes within reason, I would say. There are constraints to how quickly you can go. Physical capacity to ramp stuff up takes a bit of time, but that is not the limit I wouldn't say to where we are today. Do I think that the planet as a whole should be moving faster? Should we be investing a bit more in doing this? Yes.
Jason Jacobs (18:27):
That's the question. It's not about constraints. It's like should we aspire to move as quickly as possible?
Bruce Niven (18:33):
Faster, yes. As fast as we could possibly go. I think that might be maybe overkill. At what point are you spending so much that you're constraining other aspects of life? But I think that position is we should be further along than we are. But if you look at say what's going on in the US with the IRA, I mean, that is a massive change in the investment and spend that's going into the energy transition and it's having substantial impact in terms of bringing new technologies down the cost curve, making them affordable.
(19:04):
You have to really balance clean energy versus reliability versus affordability. You have to try and... Those things are a balance. And particularly for people in the developing world, you can't impose on them an energy cost that they simply can't afford, or at least at some point you have to make those judgments about what is affordable and what's not.
Jason Jacobs (19:25):
As the world's most profitable company, I think I heard you say earlier, I would think that you are profit seeking first and foremost. I believe just personally, I mean, Aramco aside, that when purely profit seeking, mercenary profit seeking entities, choose clean, not because it's clean, but because it is the most profitable, that is when the transition will happen the smoothest and the fastest. I guess where is that true today and what are the biggest barriers that is stopping that from being true in more places?
Bruce Niven (20:05):
I guess I would look at it slightly different. I would say in my view, if you look at fossil fuel industry, carbon is going to be regulated out of the system at some point. And so that wedge that then opens up to fulfill the growing energy demand of the world is an opportunity for us to go after. And so I think Aramco is in a fantastic position in its core industry. It's not only one of the lowest cost producers of oil and gas, its greenhouse gas footprint of its production is among the lowest in the industry, and that's a matter of percentages to tens of percentages in the overall footprint well to wheel.
(20:42):
But Aramco will be the last man standing in the oil business or close to, but it also has fantastic renewable resources in Saudi Arabia, from solar to wind. It's got geothermal. It's got the ability to do carbon capture from fossil, make hydrogen blue or green, whatever you like. So there's a whole diversity of energy supply that can be produced here that can be competitive around the world. And the company is positioning itself to take advantage of those opportunities. I mean, it's also decarbonizing its own operation.
(21:17):
That's priority number one is to get that done so that the footprint is minimized and then offer alternatives to the market as regulators and consumers choose to switch. That's more how we look at it. Moving into new energy is one part of what Aramco is doing. It's also diversifying its business. So it's not just moving from old energy to new energy, it's also moving into technology, and it's also building a portfolio of regional industrial businesses. So it's diversifying into next generation of energy, but also diversifying perpendicular into other businesses.
Jason Jacobs (21:54):
And when you think about the priorities of Aramco as it relates to the transition where you are leaning into cleaner technologies or sustainability initiatives, what are the biggest priorities overall and then what role is ventures playing in fulfilling those objectives?
Bruce Niven (22:19):
One of the first things is just eliminate the emissions from our own operations. So the company's got a net zero ambition as it calls it. It's got an interim target in 2035. The second thing is make available competitively priced lower carbon fuel alternatives. The third thing, what it's also spending quite a bit of energy on is looking for if you've got the hydrocarbon resource, put it into materials rather than fuels, so non-combustion uses, and how do you maximize the share of it that goes in that direction, and then build a diversified portfolio of new energy businesses.
(22:55):
So it's not necessarily centered in Saudi Arabia, it could be expanding it to new energy businesses and other parts of the world as well. So yeah, I would say those are the main thrusts of the direction that the company's going in.
Jason Jacobs (23:08):
And when you look to engage with innovation that's happening outside of the firm in early stage startups in particular, how are you prioritizing which types of companies are the right fit for investment and/or partnership? And also how are you prioritizing strategic fit versus returns?
Bruce Niven (23:30):
We look for both is the short answer. We need both those boxes checked, and we believe the companies that are going to be successful companies in the next generation are the ones that are going to have the biggest impact. We're most focused on technologies that can help us decarbonize the operation. That fits into a number of buckets. That's carbon capture. That's renewables and energy storage. It's energy efficiency. We are looking at nature-based solutions. How can you take carbon out of the system other ways?
(23:57):
And then in new fuels businesses, that would be things like hydrogen, other derivatives of hydrogen, including things like ammonia or other hydrogen carriers. Synthetic renewable fuels is a major focus. So there you're taking hydrogen and CO2 and creating synthetic liquids with a renewable energy driven process. Those are our strategic priorities, but we're looking beyond that as well into just disruptive technologies within the energy sector or the energy system in general.
(24:26):
So we did one recently, which is a company called Boston Metal. It's producing steel in the similar way you produce aluminum, so using an electrically driven process. So you could power that with renewables and you could do that here in Saudi Arabia for just about the lowest cost in the world. We have those core strategic areas, but just generally looking at disruptive technologies across the energy system as well.
Yin Lu (24:49):
Hey, everyone. I'm Yin, a partner at MCJ Collective, here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change.
(25:16):
Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early stage investments have been made, as well as ongoing events and programming, like monthly Women and Climate meetups, idea jam sessions for early stage founders, Climate Book Club, art workshops, and more.
(25:35):
Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to MCJCollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Jason Jacobs (25:50):
When you do invest, is there a typical stage where you like to invest? I've heard you say before that sometimes you're leading these rounds. How do you think about the role of traditional venture? Do you tend to invest alongside of them? Do they need to be at the table for it to be a fit for you? Anything you want to say on stage, check size, how you think about the syndicates, et cetera?
Bruce Niven (26:12):
The way we look at it is we try to behave as a very professional financial investor would and also be a strategic partner. So it's an and not an or. We've got about close to 80 people now in the team around the world. Many of those come from venture backgrounds, corporate venture backgrounds, consulting, iBanking, et cetera, some of them technical, some of them entrepreneurial backgrounds. So it's that kind of mix of skills.
(26:36):
We definitely try to then work, how can the technology get into the Aramco system, whether that's initially piloting it, scaling up, working collaboratively to further develop the technology. But we do also lead in structured transactions. We do also sit on boards, take observer seats. In terms of how we work with others, yes, there's definitely a role for financial investors. They bring just a very focused lens on things. They bring other skills. We're looking for people who can add value to the companies we're investing in.
(27:06):
And we take entrepreneur first mentality. We're all there to help the company grow. Whatever's the right mix of investors around the table that's going to be best to make that happen, that's what we want to see. I will say that in this field in particular, it is not an easy business for financial investors to go into. Many of these technologies are capital intensive. You're trying to bring technologies into commodity markets, so which means you have to invest quite a lot to bring them down the cost curve before they can compete.
(27:36):
So it takes time and money and patience. So definitely there are great investment opportunities out there, but often it's the strategics can help get through some of those stages in the development as well. So the strategics play an outsized role I would say in the clean energy sector relative to some others.
Jason Jacobs (27:55):
Looking through a financial lens, how do you think about risk and return profile relative to say how a typical venture investor would? Does that imply that you think about it differently given what you just said about the types of companies that tend to be coming to market in the space?
Bruce Niven (28:15):
I think in general it's a little bit riskier. I wouldn't say it's fundamentally different how we look at it. We're looking for good financial outcomes. We do invest across the stages of venture. I mean, we actually have a seed venture program in the sustainability fund. We go all the way up to 50 million tickets. And then if we want to do something bigger, we can take it to the corporate parent for them to do something. And how you think about risk/reward obviously varies a lot by the stage of company.
(28:40):
So you've got a company that's already on a growth trajectory and EBITDA positive or close to, it's a very different decision-making process from something that's three guys coming out of a lab with an idea. So we have to adjust our mindset depending on the nature of the business and you have different return hurdles you look for at different stages. I think we've got enough experience in the business. We've done a hundred plus investments now where we have a sense of what risks are you really taking.
(29:09):
I think for people who've come out of say the tech world and moving into the energy space as a venture investor, it's a bit like jumping into say the biotech space as a VC investor. Just being able to calculate what kind of risks you're taking takes a bit of time and experience to understand. We have the benefit of some experience of doing that.
Jason Jacobs (29:29):
And as you look backwards, I think one reason that more generalist venture firms might be a little skittish to jump in is that maybe they got a little excited and jumped in with both feet back in the initial cleantech wave. And certainly there were some very successful companies that came out of that era, but there were also some pretty big craters in the ground. Looking backwards, what's your assessment of what happened back then?
(29:53):
And then maybe compare and contrast where we sit today to that time, what's the same, what's different, where do we sit in this moment and think specifically to some of the more notable venture firms that maybe jumped in back then and still have those wounds or the LPs that backed those firms and how they should be thinking about the space.
Bruce Niven (30:09):
The fundamental challenges of growing those companies in some respect is still there, and those risks still exist, but I think we're in a different world at this point in time. The regulatory environment is different. The social pressure is different. I think there's going to be massive investment in deploying these things over the next decades and I don't see that reversing. There's a lot in the venture business I would say about timing.
(30:34):
You can be too early with a great idea. It won't go anywhere. And I think that's a lot of what was going on in the first time round. I think things like the IRA make a massive difference. Suddenly, projects are in the money with new technology and that has a absolutely game-changing impact on the sector.
Jason Jacobs (30:52):
When you look at these companies that are coming up, I've heard quite a lot in the ecosystem talk of a capital gap when there's equity to get the company off the ground and then they're ready to build their first plant and it takes real capital to build it, but there's still risk that is beyond what the capital providers of plants are used to taking on.
(31:18):
How do you think about that? Is that gap a real thing? What role is Aramco playing there? And what other acute gaps do you see as you look up and down the capital stack or other areas that these companies are struggling with as they seek to deploy their technologies in broader and more profitable ways?
Bruce Niven (31:37):
That step has always been the hardest one. The first of a kind manufacturing facility or first of a kind project, how do you get that financed? Because it's like venture risk, but project finance dollars. I would say that there is a lot more capital flowing into the space, both in the venture world and in the project finance world. A difficult step to get through. It forces a filter of selectivity on the market. I think the good companies can get through it. It's a tricky thing to do, and you have to have, I think, an...
(32:13):
And I'm talking really like the hard tech of energy, not so much maybe the software side of the business where there's plenty of great opportunities. You've got to be able to manage a scale out operationally. You've got to be able to put together what can be quite complex financing packages. You've got to have offtake agreements lined up. You've got to have your supply chain lined up. You've got to obviously show that your technology is working. It's a complicated business and it takes skilled management to get all those things in place.
(32:44):
There are teams that do that. It's not easy. There are great companies. We have some in our portfolio that are getting to that point that I think can make it. I think we are willing to potentially write larger checks at that size if it's something that's important to us and we really like the team and the technology. And I think we know a number of other investors in the market that I would say are probably in the same bucket, so we try to syndicate with those guys and pull it together.
Jason Jacobs (33:11):
When you do engage with these companies and they're in the earlier stages and they have technology that let's say might have commercial appeal for you and for other oil and gas majors as well, how do you think about exclusivity? And if I'm a startup... I mean, I think back to when I was a founder.
(33:31):
Conventional wisdom was don't get strategics involved too early because it can be the equivalent of signal risk. Because if you want to go broader, their competitors might be afraid to work with you because you've already chosen a horse. How should founders be thinking about that and how do you think about that as Aramco?
Bruce Niven (33:48):
So I would fundamentally distinguish between a strategic that's an end user and a strategic who's potentially like channel partner or somebody who's going to take you to market. Because I think if you partner with one of those, then you do risk scaring the others away. If you partner with an end user, it's much more of a clear win-win. We've got such a scale of operation and we will do things at scale that as an end user, we have a lot to gain if we've got a better technology.
(34:14):
There are cases where particularly if we decide we like something and we will potentially write bigger checks later on, we would potentially look for advantage terms, commercial terms of one sort. Maybe we'd want to be part of a Middle East venture. Maybe we would look for most favored nation pricing access to the technology. I think going forward, Aramco may have more appetite also for M&A to broaden its portfolio of businesses and new energy. But overall, I would say partnering with an end user is a great thing to do. I don't think you're really hampering yourself too much by doing that.
Jason Jacobs (34:52):
Another question that I struggle with, and I'd love to get your perspective on, is we see a lot of successful entrepreneurs who have come from other areas that aren't energy. Maybe they're purely digital, for example, building big SaaS businesses in unrelated areas or things like that. And they know how to fundraise. They know how to build great teams. They know how to continually evolve the teams that are around them over time to navigate different stages. They know how to win customers.
(35:21):
They know how to facilitate M&A, et cetera, et cetera, but they don't have domain experience. And then we see others who have deep domain experience for decades but haven't done all the things that I just said. And maybe there's not as many energy companies that have come from zero and done that, meaning that you're not going to find as many people with domain experience that have experience doing those other things.
(35:44):
How do you think about the DNA of founding teams for these kinds of businesses and what the right mix is if there are any criteria that you think carry across companies?
Bruce Niven (35:53):
All those skills you mentioned from the tech entrepreneur, I mean, repeat entrepreneurs is one of the great things to have in a team. They've just been there and done that before. But you're right, there aren't so many of them who've done it in this space. There are some. It tends to be more complicated. There's more pieces you've got to put together. And so it's about building a team, not just a single founder. And people who can do that really well surround themselves with quality people who can address all those things.
(36:20):
That's pretty critical. You certainly do need people who know how to deal with investors, how to ultimately deal with project finance providers, how to deal with big strategic. But that mix evolves as the company grows, right? So you have to bring in the right skill sets at the right time. I think when we're sitting on boards, we're always looking is, where does the team need to grow? I think you have that same issue in growing a tech company as well.
(36:48):
It maybe biases a little bit more to have people with a few gray hairs who've been in the industry and know the ins and outs of how building big projects works. I say that and we've got some great young entrepreneurs in our portfolio who are knocking it out of the park. So it's not at all exclusive.
Jason Jacobs (37:03):
Yeah, as do we. So it's hard because we probably bias towards multiple time founders as well for some of the reasons you mentioned. But actually, yeah, some first timers are some of the best performing companies in our portfolio.
Bruce Niven (37:15):
But at some point, they have to bring in people who really have the industry experience.
Jason Jacobs (37:19):
Another concern I've heard from LPs as they look at the landscape is that historically, there's not been a lot of big exits in the space more broadly. And so when you think about liquidity, returns, DPI, what kind of outcomes do you think it is sane to underwrite to and why do you think that?
Bruce Niven (37:45):
I think some of these businesses can become very, very large. Tesla, as an example, came out of the trough of the cleantech 1.0 bust. That's when it was born, I think 2011. Even earlier than that maybe. There are big opportunities out there for some of these plays, so I don't think at all that it limits you. Some of these things can become huge businesses. It's maybe just a little bit more selective how many make it to that scale. And I mean, there have been some good exits say in the EV charging space.
(38:13):
I think there's been a number of very successful companies that have... At least investors have got exits there. The EV sector in general has done well. Renewables has been much trickier. You look how many startups in the renewable business, solar business have really been successful against the dominant position that China has had and their relentless cost down. It's been really tough to try and compete with that.
(38:35):
So I think you need to find somebody who's got something really unique. You need to find a pathway to navigate the global market, and it takes skill and a bit of patience, but you can get there.
Jason Jacobs (38:46):
Along similar lines, how do you think about regulatory risk? How comfortable are you backing companies where there is regulatory risk? What kind of regulatory risk is a non-starter, if any? And also just how engaged are you when you do work with these companies on that side of the fence with understanding and influencing policy?
Bruce Niven (39:07):
I would say we tend not to try to influence policy, at least not at the venture group level. I wouldn't say we couldn't try and do it if it was really a strong case to be made, but we leave that to the regulators. I would say the one thing we don't do is speculate that regulations will come. If you take say the IRA, I don't think it's going away.
(39:26):
I think if you look at say the marine sector or the aviation sector and how are those regulations going to develop, there is more risk around some of those markets. I think when you're a venture investor, there's many risks and you're taking some level of risk. You have to make calculated judgments about they all stack up against each other and what you're willing to take.
Jason Jacobs (39:45):
Another question that I had is some founders, even some founders in our portfolio, they fear speaking with the oil majors because they worry that if their technologies, let's say direct air capture, for example, if put in the wrong hands could be an excuse to keep omitting. Is that fear warranted in any way? And also what advice do you have for founders in terms of how to tell which oil majors are serious about the transition and worth engaging with if the founder's motivation is to accelerate the transition and what some red flags might be to stay away?
Bruce Niven (40:25):
I think the oil and gas industry's vilified quite a lot in this whole picture and for maybe good and bad reasons, but I would say that it's got a really important role to play. It does things at scale. It manages complex projects. It distributes energy solutions around the world. It's got skills that are valuable in definitely certain segments of the new energy future. It shouldn't be ignored. I don't believe it's trying to hold the thing back. I think it's quite pragmatic. My view is that we shouldn't be labeling different technologies just because there are certain type of technology.
(41:00):
We should actually just be looking for the lowest cost way to decarbonize society. So whether that's carbon capture versus building renewables versus synthetic fuels, whatever it might be, direct air capture, even greening the desert, as long as it's credible and it's assured, use all means available to take down the footprint at the lowest available cost. And when we look at direct air capture, by the way, the primary interest for us is actually making synthetic renewable fuels.
(41:28):
If you're going to decarbonize aviation say, it's one of the hardest sectors to decarbonize. You can get efficiency improvements. It takes you so far. You could use electrification, but that's only ever likely to maybe get you from LA to San Francisco. Hydrogen could be an answer for mid or long range maybe. But otherwise, you've really got to use substitute fuel products, and so it's biofuels or you can do synthetic renewable fuels, which is CO2, which could be initially from point sources, but could ultimately be from direct air capture and hydrogen.
(42:02):
The environment we're in, the Middle East Desert, we actually think that we can make synthetic renewable fuels ultimately competitive against biofuels, and you're not competing land use for food production or other vegetation. I actually think that that is the most likely and probably most responsible way of decarbonizing the aviation sector. So if you're a DAC provider, that's where we're interested in going with it.
Jason Jacobs (42:28):
One challenge it seems is that the financial system, the accounting system, profits, losses, revenues, it's very sophisticated and pretty easy to measure some of these trade-offs in terms of emissions and greening the desert versus sinking kelp to the ocean floor versus avoiding cutting down timber.
(42:47):
There's so many different ways to attack it, and I worry that the accounting system as it relates to emissions is much fuzzier and harder to measure. What's your take on how mature that system is and how much energy are you spending as an organization on that type of accounting relative to financial accounting?
Bruce Niven (43:09):
I would say that it still is a work in progress in terms of how things are measured and accounted for, and you've seen all the turbulence in the voluntary carbon markets in the last year. Verra, CEO, resigning, all the rest of it. I mean, that's a symptom of how immature it is. I think there's quite a number of people out there trying to work at how we do that better. I think in a world where you have big data and sensors on everything, IoT technologies, again, that is a problem that will just increasingly become solved.
(43:43):
It's an area actually where we're interested to invest in solutions. Can you actually trace the footprint of commodities through supply chains? We're actively looking for things that can do that. And obviously it's easier in some situations than others. Also, just in terms of how the oil and gas industry or industry as a whole is trying to measure footprint, that is, again, also it's still an evolving picture. ESG metrics are, I would say, far from perfect and sporadically implemented. You have to work with what you have.
(44:15):
I don't think it means that you should block certain pathways. I think just the whole ecosystem needs to work at getting solutions that are as frictionless as possible to implement, as accurate as possible, ideally give you a fair view of one solution against another. So all still work in progress. It's certainly not at the level of how money is counted. That's certainly true.
Jason Jacobs (44:39):
Bruce, when you think about the innovation ecosystem, we talked about some of the types of companies that you back and stages and how you like to engage with these companies. What about the step before that when you're just looking to get closer to the ecosystem? What are some things that you're doing as an organization to engage in the startup ecosystem? And aspirationally, when you look forward, what types of ways are you hoping to get involved and what are your pain points, if any, in your ability to plug in as much and as effectively as you'd like?
Bruce Niven (45:11):
I think within the energy system, our venture team is now getting reasonably well-known where we've got a pretty good network of other investors who play in the space. I think we are trying to build more of a presence in the early end of the market, which actually many people in the venture business are doing. We're doing it because we want to access things early. There's other reasons why the whole market is moving in that direction. I am a believer in having people come to you because of what you deliver to the last guy.
(45:39):
So for me, the venture business is really all about delivering value to the companies we're invested in, having a reputation for professionalism and value add. That is what gets the next entrepreneur picking up the phone and calling you. And that's not an easy thing to do either. That's something that we continually work to improve. I think people who are in the energy space probably by and large know we're out there. Not all of them, but a good chunk of them do.
Jason Jacobs (46:08):
And for founders listening that think they might be working on something that's a fit for Aramco Ventures, what is the best way to engage?
Bruce Niven (46:15):
I would say probably find one of us on LinkedIn, or you can see the names on our website, I think. We attend a lot of venture events, particularly those focused on sustainability. But LinkedIn's probably the easiest way to get there or through some referral who knows us. That's actually the best way. Always happy to have a discussion.
Jason Jacobs (46:36):
Any specific call-outs of things you're trying to solve for, either technologies that you're especially interested in or hires you're looking to make or others that might be a call to action for listeners?
Bruce Niven (46:47):
Yes, we are going to grow our team, particularly on the West Coast. It's not easy with time zones from Saudi, but yes, we're building up. Looking for people as well who want to help us build out the seed program, so early stage, so people who can really help us build the network within the labs, the universities, and really focused on the top schools. I think some of the technology domains I already covered as the key ones, but also I think there's also a role for digital solutions in this whole space as well, which is often easier to invest in and faster to bring to market.
(47:17):
That is an area which I didn't really talk about. We're certainly actively looking to invest. Fundamentally, what we're looking for is disruptive technologies in energy, things that can really change the game or that can break out against the incumbent ways of doing things. And if people out there really think they have something like that, we're very interested to have a serious conversation, and we ultimately want to do things at very large scale.
(47:45):
To move the needle in Aramco, you've got to do things in the billions, and we are looking for technologies where we can ultimately do that scale of stuff with.
Jason Jacobs (47:56):
Maybe my last question is just there's a portion of people that are climate activists, let's say, that are quite angry at big oil companies and they're protesting and laying in front of traffic and destroying artwork at museums and things of that nature. Maybe just talk to that group for a minute. If any of them happen to be listening, what do you want them to know about Aramco?
Bruce Niven (48:19):
Like I'd say, there's nothing wrong with keeping people honest, and I think they play a role in doing that. I think that the oil and gas industry, at least from my perspective, is taking a pragmatic view of how we manage this. We're looking for solutions. We're looking to build businesses that are sustainable in delivering energy, and that to me is an entirely positive thing. I don't see a reason to try and get in the way of that.
(48:45):
I think that's true of many oil and gas companies, and I think it's also this point in time sensible for them to go after those opportunities. So I'm sympathetic, I suppose with people's views and the concerns. I would say that support people who are doing sensible things that do good and that's what we're trying to do. And don't be prejudiced by where they come from.
Jason Jacobs (49:12):
And is there anything I didn't ask that you wish I did or any parting words for listeners?
Bruce Niven (49:15):
I think that I'm fundamentally optimistic that this problem will be solved, that technology will get there. There's a thing called Amara's Law. It was some guy I think it was in the DOE back in the '20s who said that the impact of technology is often overestimated in the short term and underestimated in the long term because we project linearly into the future and technologies move like an S-curve.
(49:38):
So things may seem to be going slowly, but actually they're incubating. The energy transition is underway. There's still a ton of work to do. There's still going to have to be an awful lot of spend to convert our system. It's going to be great entrepreneurs and brilliant technologists and a whole lot of people helping them build those things and scale them and that's going to make it happen. That's why we're here to be a part of that.
Jason Jacobs (50:02):
Well, Bruce, I can't thank you enough for making the time to come on the show. I found this to be a very robust and thought-provoking discussion, and I expect it'll spur a lot of dialogue in the community and hopefully lead to more collective understanding and collaboration and help to transition along as well and if we can do those things. As MCJ, we're doing our job and you coming on was a big part of that. So thank you and best of luck.
Bruce Niven (50:25):
No, thank you, Jason. Thanks for giving me the opportunity to be on here. And it's a good thing you're doing with your show here. You're getting plenty of interesting people coming on and talking about what they're doing. So thank you.
Jason Jacobs (50:34):
Thanks again for joining us on the My Climate Journey Podcast.
Cody Simms (50:39):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity.
Jason Jacobs (50:48):
If you'd like to learn more about MCJ Collective, visit us at MCJCollective.com. And if you have a guest suggestion, let us know that via Twitter @MCJPod.
Yin Lu (51:01):
For weekly climate op-eds, jobs, community events, and investment announcements from our MCJ Venture Funds, be sure to subscribe to our newsletter on our website.
Cody Simms (51:11):
Thanks and see you next episode.
