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The corporate venture capital (CVC) arm of global energy and solutions company PETRONAS has invested in 19 startups and seven venture capital funds in a little over two years. Here’s how PETRONAS Ventures made it work, despite the pandemic.
In early 2020, the COVID19 pandemic looked set to seriously disrupt PETRONAS Ventures.
The CVC arm of Malaysian global energy and solutions company PETRONAS had formally launched operations in 2019 and was very much “the new kid on the block”, according to PETRONAS Ventures head Arni Laily Anwarrudin.
Three years on, PETRONAS Ventures stands vindicated.
While the pandemic made some aspects of its business more difficult, the CVC has gained from an increasing interest in innovation and digitalisation. Its first fund of $350 million has been almost fully deployed. There have been two successful editions of the PETRONAS FutureTech accelerator. The current investment count stands at 19 startups and seven VC funds. The next round of the accelerator is happening in Q1 2023, with more refinements.
PETRONAS Ventures, which is spread across the US, China, India and Southeast Asia, including Malaysia, is geography agnostic, even as it plays a key role in championing the local ecosystem.
But its biggest success is arguably in bridging the gulf between the informal and quick-paced world of startups, and the triple-bottom-line approach of people, planet and profit by PETRONAS, its parent company. PETRONAS Ventures is well on its way to meeting the objective it was created for.
Arni said, “We invest in visionary entrepreneurs with breakthrough technologies. Our objective is to create synergies between portfolio companies by providing access to our technical and business experts. This has differentiated us from other VC firms. In addition to being a connector and investor, we are also an ecosystem builder within Malaysia, and a mentor for some local startups.”
While ROI is a priority, as it is with other VCs, PETRONAS Ventures is differentiated by a sharp focus on deployment. Arni said, “After two to three years, our direct investment in 19 portfolio companies is around creating future cash flows.”
A future-focused CVC
While looking for investable opportunities, PETRONAS Ventures picked startups that could enhance the business of its parent company as well as its partners.
“We wanted a finger on the pulse of what the future holds: whether it’s disruption, or acceleration, of technology that will be critical to our portfolio. As we move into an energy transition, it is going to be less hydrocarbon reliant and more about green inputs. It is what customers want and is guided by our statement of purpose as well,” adds Arni.
Given the difficulties inherent in such a change, the focus is on white spaces in areas that have so far been beyond the purview of the company’s very powerful R&D arm.
The investments have been centred on three verticals — facilities of the future, the future of energy, and specialty chemicals and advanced materials.
PETRONAS Ventures has made direct investments in startups as well as invested in other VC funds, with most of them being direct investments too.
However, some of the countries that PETRONAS Ventures would like to be present in — China, India and Southeast Asia, for instance — already have well-developed local investor ecosystems in place, significantly raising the entry barriers. As a workaround, PETRONAS Ventures partners with VC funds, which help open doors to new technology and LP relationships.
“Sometimes they help us take the first step in understanding direct investments in these competitive, well-matured startup markets. Having access to VC funds gives us a seat at the table with LPs that we want to be seen with,” explained Arni.
CVCs have had mixed fortunes so far, with many startup founders preferring to steer clear, apprehensive of becoming a cog in a large bureaucratic system.
Asked how PETRONAS Ventures managed to avoid the negatives of being a CVC, Arni attributed it in part to the parent company. “PETRONAS has been around since 1974. We have built long-term relationships through teams, businesses and ventures, and our commitment to people development and nation building. When PETRONAS Ventures started, it was not from zero,” she said.
At the same time, the firm had to carve out an identity in a market where several investors were wooing startups, and with many potential companies to choose from.
The PETRONAS FutureTech accelerator has played a pivotal role in winning startups over.
A constantly evolving accelerator
Speaking about PETRONAS FutureTech, Arni said: “There are many startups with great ideas in Malaysia. It is a waste to have such talent without a supportive ecosystem. PETRONAS initiated PETRONAS FutureTech to encourage local innovation.”
Currently two editions old, the accelerators have enjoyed good traction. PETRONAS Ventures has tied up with ministries, corporates and private investors.
The first edition of FutureTech in 2019 had no external sponsors and saw PETRONAS Ventures working with government agencies. The result was 160 startups applying for the first cohort, with 20 shortlists and three winners. PETRONAS FutureTech included masterclasses, fireside chats, and mentoring by business partners as well as PETRONAS Ventures’ investment arm in San Francisco, PIVA.
Two companies from the first cohort became PETRONAS investees: solar energy firm Sols Energy, which offers end-to-end solutions from solar panels to financing, and agritech startup Braintree Technologies, which participated in the successful National Farmers Organisation (NAFAS)-PETRONAS Integrated Paddy Growing Management (PTPB) Program’s pioneer project in Kampung Nam Dam in Kedah, Malaysia.
Other than that, PETRONAS Ventures has invested in Iraya Energies, which develops ElasticDocs, an artificial intelligence (AI)-enabled and cloud-native software that converts unstructured data into actionable insights for PETRONAS’ geoscientists. To date, Iraya Energies has ingested more than 35 GB of data across PETRONAS, from our upstream exploration blocks in Mexico, Brazil, peninsular Malaysia, and now it has expanded its solution across the engineering and construction sectors.
A key lesson learnt was to improve the stickiness of the accelerator and ensure long-term engagement with startups.
For PETRONAS FutureTech 2.0 in 2021, PETRONAS Ventures collaborated with two corporate partners. Arni said, “We broadened the pillars to get into more grey technology areas and lengthened the duration of mentoring and business partnerships.”
Realising there are no overnight successes, PETRONAS Ventures is still working with some startups on proof of concept (POC) to see how best their technology can be embedded within the group.
According to Arni, “Collaborating with major corporations is key to nurturing the ecosystem. It also creates a positive socio-economic impact through education and skill investment, as well as tech-driven innovations that support the United Nations’ Sustainable Development Goals.”
A mutually beneficial relationship
Apart from the accelerator, immersion engagements with founders give the senior leadership at PETRONAS an insight into how startups work, and what makes them successful. Arni said, “A lot of this entrepreneurial excellence, and risk-taking — with certain boundaries — are elements that we have incorporated into our culture.” It is specifically useful for teams focused on innovation, technology and cleaner energy solutions, as PETRONAS moves to become a more agile organisation.
For startups, conversations with mentors from PETRONAS give an in-depth view of risk assessment, commerciality, scalability and market testing. For some of them, it’s a window to an otherwise inaccessible market.
“Out of our San Francisco outpost, we have invested in startups that have thrived in the US but have no access to Asia. We can help them leverage on our footprint and customers,” Arni added.
Last year, Malaysia raised $458 million across 71 deals, according to DealStreetAsia data. However, Arni was clear that there was a lot of room to develop and grow.
“The amount raised in Malaysia is less than 1% of the total for Asia. I’m confident that we will see higher numbers from the Malaysian ecosystem. We are on the right path, with a focus from different ministries. It’s about putting all of it together and executing,” she said.
Malaysia has got off to a good start in Q1 2022, cornering $319 million across 29 deals, according to DealStreetAsia data.
The team at PETRONAS Ventures is already making the most of a post-lockdown world, talking to founders in person.
“The VCs that we invest in now, will hopefully be our core in the next five to 10 years as we pivot our portfolio. We want to elevate our accelerator programme to ensure we connect the dots, far beyond the Malaysian ecosystem. Startups in our funnel should have a higher chance of success, not just because of us, but other ecosystem builders. We want to create Grabs of the world within the region — with a higher probability of success and scalability,” she added.