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Dollar value of funding rounds increases
In Q3 2023, the oil and gas peer group backed the same number of startups as it did a year earlier, but the estimated dollar value of those deals rose sharply. The willingness to back bigger deals comes against the backdrop of rising crude oil prices, as supply is constricted but demand is growing.
The investment arms of oil and gas companies backed the same number of startup funding rounds in the third quarter of 2023 as they had in the same period in 2022 – 37. But the total estimated dollar value of those deals rose by 80% from $1.42bn last year to $2.56bn in Q3 2023.
This is the highest quarterly cumulative deal valuation seen since 2021.
A handful of large deals, the biggest two of which were backed by Saudi Aramco’s investment units, helped lift the average deal size. Aramco Ventures backed the $262m series C round raised by US-based metal tech developer Boston Metal. Meanwhile, Prosperity7 Ventures, the other investment arm of Saudi Aramco, backed the quarter’s second-biggest funding round, the $175m series C raised by networking technology company Nile Secure.
The average size of deals that oil and gas corporate venturing units participated in for the first nine months of 2023 – $46.47m – is still down compared with 2022, when it stood at $60.65m.
The VC industry has seen a correction across the board over the past 18 months, fuelled by factors such as the collapse of the Silicon Valley Bank, as well as macroeconomic factors such as inflation, the rising cost of living and
volatility in commodity prices. It is too early to discern if the recent increase. in total dollar means that the period of
correction is ending.On a sector-by-sector basis, the number of deals in cleantech, IT, transport and mobility, as well as oil and gas technologies, have continued to dominate throughout 2023 so far. Shell, Equinor and Chevron have taken the lead in cleantech investments since 2014. Saudi Aramco and Chevron led on investments in IT technologies, whereas Shell, BP and Chevron invested the most in transport and mobility startups.
Over time, corporate venture investors have consistently shifted to non- core areas, primarily IT, cleantech and transport and mobility. Businesses in these areas are the most likely to disrupt the core business of oil and gas companies. Energy storage, carbon capture and hydrogen were among the most popular cleantech investments in
the third quarter of 2023, continuing to reflect the push to decarbonise heavy industry across the globe.Crude prices rising
Crude prices are not bound in as narrow a range as they were in the first half of the year. They now appear to reflect mounting pressures on the supply side.
OPEC member countries have vowed to continue reducing output voluntarily throughout much of this year, with Saudi Arabia and Russia’s output reductions being widely publicised. Yet, crude prices did not budge, with the WTI benchmark staying between $70-$75 a barrel until recently, when it broke out above $80 level.
Benchmark oil prices are ultimately determined by global supply and demand for crude. In Q3 2023 and beyond, the International Energy Agency (IEA) is expecting world consumption of liquid fuels to exceed global production. In fact, the EIA expects oil demand to surge to an all-time record high of 102 million barrels per day on average by the end of this year.
Aside from concerted actions by OPEC, geopolitics and macroeconomic factors have also taken their toll. Some oil-producing countries, such as Libya, Iran and Venezuela, are effectively taken out of the world market, as they are either subject to sanctions, or are in a period of civil unrest. The war in Ukraine has also made it impossible for Russia to sell its oil and gas (at least directly) to many developed countries.
Demand remains strong
Some analysts expected demand to weaken in 2023 due to recessionary pressures across much of the developed world. That has not transpired and, far from weakening, oil demand has been growing. Demand for oil by China, the world’s second-largest consumer, is expected to grow 6% to 15.82 million barrels per day, up 50,000 barrels from the August forecast.
The IEA in its Short-Term Energy Outlook expects the WTI spot price to average between $80 and $90 per barrel for the rest of 2023 and through 2024, forecasting higher oil consumption, higher fuel liquid production and discounting the ongoing output cuts by major producing countries.
The IEA is, however, also forecasting that global oil inventories are likely to decline by the end of the year, which would add upward pressure to oil prices in the coming months. In fact, its Brend spot price forecast averages $93 per barrel.
Higher or stable oil prices are positive for corporate venturing in the space because more capital will potentially be available for VC and innovation investing.
Biggest startup funding rounds1 of 10
Boston Metal
$262m series C round
Saudi Aramco participated via its Aramco Ventures arm in the $262m series C round raised by US-based metal tech developer Boston Metal. The round was led by ArcelorMittal and reportedly valued the company at $598m. Other corporates including Vale, BHP Ventures, BMW i Ventures and the Microsoft Climate Fund also participated. The funds will be used to accelerate the deployment of its high-value metals business and grow the team globally. Boston Metal has developed a technology using electrolytic cell to process raw iron ore and produce ferroalloys, a margin material used to produce certain grades of steel.
2 of 10
Nile Secure
$175m series C round
Prosperity7 Ventures, another investment arm of Saudi Aramco, backed a $175m round of Nile Secure through a combination of debt and series C equity funding. The transaction put the company’s pre-money valuation reportedly at $600m and also featured Liberty Global Ventures, among other investors. Nile Secure provides secure connectivity intended to deliver network independence through wired and wireless networking. The company uses monitoring, analytics and automation to fundamentally change how networks are deployed, secured and maintained, enabling users to get a fast and uninterrupted network.
3 of 10
Newlight
$125m round
Oxy Low Carbon Ventures, the venturing arm of Occidental Petroleum, was part of the $271m round raised by US-based carbon capture tech developer Newlight Technologies. The amount was raised through a combination of series G and series G-funding in a deal that put the company’s pre-money valuation at $800m. The transaction also featured natural gas and midstream company CNX Resources and a number of private investors. Newlight uses micro-organisms found in the ocean to convert air and greenhouse gas into a natural biomaterial that can be melted and formed into products.
4 of 10
Verdagy
$73m series B
Shell Ventures, Turkish oil producer Tupras and Spain’s Galp Energía were part of a $73m series B round raised by US-based hydrogen tech developer Verdagy. The transaction put the company’s valuation reportedly at $247m, according to PitchBook. The round also featured other corporate investors, including Samsung Venture Investment, Yara Growth Ventures and Zeon Ventures. Verdagy is developing water electrolysis technology designed to produce green hydrogen. The funds will be used to accelerate the launch and commercialisation of the company’s e-Dynamic 20MW electrolyser module, which will serve as a fundamental unit to future systems at the 200MW scale and beyond.
5 of 10
Avnos
$80m round
AVNOS ConocoPhillips and Shell Ventures, the venturing arm of Shell, backed an $80m round raised by US-based carbon capture tech developer Avnos, which also included JetBlue Ventures. Avnos is developing a HDAC (hybrid direct air capture) technology designed for carbon dioxide removal that captures both CO2 and water from the atmosphere in a single system. The company claims to offer the broadest geographic potential available, while lowering costs and using less energy. The funds will be used to accelerate growth and expand its R&D to deliver commercial-ready HDAC units by the end of 2025.
6 of 10
Morrow Batteries
$74m round
Industrial conglomerate Siemens took part in a $75m round that was raised by Norwegian energy storage developer Morrow Batteries. ABB Technology Ventures, Nysno Climate Investments, Pensionskassernes Administration and Å Energi Vannkraft also participated in the round. Morrow Batteries manufactures and develops industrialised graphene-enhanced lithium-sulphur batteries with significantly improved performance and a smaller environmental footprint.
7 of 10
Hyperview
$82.5m series B
Prosperity7 Ventures backed a CNY100m series B+ round raised by China-based vehicle tech developer HyperView (Hong Jing Drive). The financing will be used for the development of the company’s next-generation Advanced Driver Assistance Systems and high-end autonomous driving solutions, as well as talent acquisition. Hyperview develops and provides computing software solutions focused on autonomous driving. Its software provides full-stack autonomous driving solutions that integrate software development and hardware design.
8 of 10
Aeroseal
$67m series B
US-based sealing technology developer Aeroseal raised a $67m series B round, led by Climate Investment and Breakthrough Energy, which featured Aramco Ventures. The funds will be used for product expansion beyond buildings into gas pipelines and new geographic markets. Aeroseal has developed duct sealing products designed to reduce carbon emissions from buildings. The company’s non-toxic, water-based formula claims to effectively seal all the holes in the building envelope, air ducts and vents, enabling people to make their homes and workplace more comfortable and healthier.
9 of 10
Arrcus
$65m in a series D
US-based networking software developer Arrcus raised $65m in a series D round led by corporates Prosperity7 Ventures and Hitachi Ventures. Liberty Global, SVB Financial Group, Clear Ventures, General Catalyst and Lightspeed Venture Partners also participated in the round. Arrcus has developed hyper-scale networking software, which interconnects people, machines and data and offers easy-to-operate software spanning the infrastructure, from routers to switches to servers.
10 of 10
Energy Dome
€55m in a series B
Italy-based Energy Dome raised €55m in a series B round co-led by Eni Next, the venturing arm of Eni, and NEVA SGR. EnergyDome is developing an energy storage technology designed to fight climate change, based on a thermodynamic transformation of CO2 though a closed-loop process to store energy and make renewable power dispatchable. The funds will be used to enter full commercial scaling mode on a global basis, while further fuelling the company’s growth and completing its 20MWh, 200MWh CO2 battery project under development by the end of 2024.
Exits
There was one notable exit we tracked during Q3 this year:
Carbon Engineering
Canada-based carbon capture tech developer Carbon Engineering reached a definitive agreement to be acquired by Occidental Petroleum for $1.1bn. Previous backers of the company include oil major Chevron, airline Air Canada and aircraft maker Airbus Group. Carbon Engineering utilises direct air capture technology to capture and store carbon dioxide from the atmosphere or convert it into ultra-low carbon synthetic fuels, enabling businesses to effectively address their carbon footprint, achieve net-zero targets and access clean, affordable energy systems.
New funding initiatives
We saw only one funding initiative in the energy sector in the third quarter of 2023:
LX Ventures
The most notable news on fundraising from Q3 was around United Airlines Ventures (UAV). The unit had set up a fund focused on sustainable aviation fuel in February and July, it increased the size of that fund from the original $100m to almost $200m, as several new backers joined. UAV originally teamed up with air carrier Air Canada, aircraft manufacturer Boeing, aerospace company GE Aerospace and industrial conglomerate Honeywell. New backers from the latest tranche include American Express, Groupe ADP, Boston Consulting Group, Saudi Aramco, Hawaiian Airlines and JetBlue. Interestingly, United even allows its customers to contribute a small amount to the fund when booking a flight. The customers are not promised any actual investment return, but they do get the satisfaction of having done something to lower their carbon footprint.
People movesLisa Lambert
Lambert leaves National Grid Partners
Lisa Lambert, founding president of National Grid’s open innovation and CVC arm since 2018 and a multiple GCV Powerlist entrant, has exited from the company.
Peter Votkjaer Jorgensen
Maersk Growth’s Jorgenson jumps to portfolio company
Maersk Growth partner Peter Votkjaer Jorgensen is taking on the CFO role at WasteFuel, a portfolio company for the unit since late last year.
Alfonso Sessa
Sessa leaves Engie New Ventures
The renewable energy financing expert has left the the company after 11 years.
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