Interesting moves are afoot at BP Ventures – their first investment in food (fish food, to be precise) and some changes to their team. Their former San Francisco-based US venture head Meghan Sharp has joined Beyond Limits, the California-based AI startup, as COO. BP invested in Beyond Limits in 2017. She has been replaced by David Hayes, who will also take on the new role of global Chief Investment Officer, working across the whole BP Ventures portfolio. And it is David who has joined the board of Calysta, a Californian biotech business that makes fish food from natural gas, following BP’s $30m summer investment. In the interview below, David sets out the strategic rationale for the investment, discusses the wider use of natural gas as a low carbon feedstock and gives an insight into how BP’s venturing strategy is continuing to evolve. David, who hails from Leicestershire in the UK, joined the BP Ventures team ten years ago, the last eight of which have been spent based in San Francisco, a city he now calls home.
David, let’s get the fish jokes out of the way early – the investment in Calysta is a great catch for BP, but how easy will it be to scale?
Very good Tom. Ok, to be serious, BP can help grow this business. We have geographic reach. For example, Calysta is very interested in Oman as a region to build a plant to produce the fish food and we are active there. $30 million is a reasonable deal size. And I don’t think that’s all we are going to invest. To build a commercial-scale plant costs about $400 million, so when you consider that the protein market for fish is expected to grow from 45 million to 60 million tonnes by 2025, that would need a number of these plants to meet the potential demand. Calysta has a plan of producing 100 million tonnes, which will cost around $4-5 billion of capital.
What is the essence of Calysta’s innovation?
Calysta is using advanced biological processes to exploit and enhance the power of naturally- occurring bacteria to produce food at a commercial scale.
This is BP Ventures’ first investment in food, but the parent company has history here.
Correct. We had a business called BP Nutrition, which was sold in 1994. I did some more digging and, based on the financials, it looked like it was a pretty good business. It was generating $5 billion in revenue in the nineties. I guess it wasn’t deemed strategic and was sold.
But now food is seen as strategic?
Food is strategic for Calysta. However, for BP it’s about creating new markets for gas and new uses of gas beyond heat, light and mobility.
How does Calysta fit into BP’s strategy around the energy transition and the broader sustainability agenda?
BP getting involved with Calysta initially sounds unusual and there was quite a steep learning curve for us to understand how fish ends up on our plates. Farmed fish is often what we eat, and wild-caught fish is fed to those fish, which is just not sustainable. Fishmeal is at capacity, and there is a limit on how much fish can be caught to feed to fish. To combat that, the world is replacing fish protein with soya bean protein and other plant-based proteins. But that’s not sustainable when you consider the land and water required to grow them. The Calysta technology uses somewhere between 77-98% less water than alternative ingredients, including soy and wheat proteins.
It also requires no agricultural land to produce, freeing that land for other food crops. In fact, one commercial scale Calysta protein plant, if used to replace soy products, would free up land equal to an area the size of Chicago, Illinois or Birmingham, England or Seoul, Korea.
[Source: A copy of the report can be found at: www.carbontrust.com/feedkind.]
But the feedstock is gas and that will be BP’s natural gas.
Yes. BP aims to be Calysta’s sole natural gas supplier. There is great potential. If Calysta were to replace all proteins out of the fish feed market, you’d need 127% of the natural gas that BP produced in 2017. I’m not saying you can feed fish just with Calysta’s product. You can't. But this gives an idea of scale because it can be fed to pets, to livestock and fish. We will be looking for more investments in companies that make products or things sustainable or cleaner by using natural gas as a feedstock. Gas-to-products is where we need to head. We’ll be using natural gas for electricity and transportation, but as you see fleets becoming more homogenized and more autonomized, this protects our core product of gas for the future, I believe.
I’m keen to talk more about gas, but first I’d curious to know the extent of BP Ventures’ appetite for more food-related investment? What other types of investment will you be looking at?
We’re certainly interested in investments and solutions to the rising demands for food and limited natural resources around the world, and indoor farming including aquaponics is also of interest.
By investing in aquaponics for example you’d be helping to create and grow the market for Calysta’s products.
Possibly, we’d be participating in the growth that is already underway in aquaponics, bringing strategic value and connecting different threads within our venturing and new business strategies.
For example, I can imagine Lightsource BP, BP’s solar business, providing power to aquaponics and vertical farms. I can envisage carbon capture and usage businesses providing farms with the carbon dioxide required to grow the food and then recapturing whatever carbon dioxide before it is emitted. I can see us extracting value from a range of waste streams. I sit on the Board of Fulcrum, our waste-to-jet fuel investment, and they extract value from household waste, so this isn’t new for us.
So, the circular economy is back as a venture theme?
It never went away. It’s just getting more relevant and pressing.
How is natural gas a part of the circular economy?
If we reflect on BP’s energy outlook, we see that renewables are making inroads, and we all want to see them take a bigger share. But hydrocarbons are still a material chunk of overall energy supply up to 2040, particularly natural gas. And I’m particularly keen to invest in businesses that can use natural gas to displace products and thereby make them cleaner and less carbon intensive. Calysta is a great example. There will be others. I can imagine investing in businesses that convert methane into clothing. You’re essentially just moving carbon molecules around.
This takes us on to discussing Xpansiv CBL Holding Group, another BP Ventures portfolio business where you’re on the board. XCHG offers what it calls an intelligent commodities platform which can offer customers ‘digital feedstock’. How does this affect gas?
The tagline of the XCHG website is ‘not all commodities are created equal’. Thanks to an explosion of data gathering and reporting capabilities, XCHG can differentiate between commodities, including gas, so that customers can make much better-informed purchasing choices. I believe that ‘responsible gas’ – gas which is produced without flaring for example – will find more customers.
How will your work be different for BP Ventures now that you are Chief Investment Officer as well as MD for the Americas?
I’ll lead our venturing in North and South America; sourcing investments, taking seats on boards etc. reporting to David Gilmour, our overall head. But the experienced team of principals I work with in San Francisco and Houston stays the same. I will however formalise the role I have played for a while and be responsible for our term sheets and investment agreements across all the regions where we venture. We’re keen to see consistency in how we marry our venturing with BP’s overall strategic objectives.
I hope you won’t mind me describing you as a relatively old hand at BP Ventures, having worked there for ten years. You obviously enjoy the job, but what are the frustrations you have and what are you trying to change?
It’s frustrating that we’re still seen as a big scary corporation to some early stage startup companies. This sometimes leads to nervousness among entrepreneurs. I’d like our track record to be better understood: we’ve not missed a follow-on round. We’ve been a good investor. I’m frustrated when I hear of other corporate VCs not doing the same. Our term sheets and investment agreements are consistent with market norms. We seek alignment with founders and co-investors. And in many cases we have helped drive growth in our investments through advantages only a big corporate like BP can bring. So, I look forward to venturing further afield - outside the traditional energy domain – into great startups that are building a more circular economy.