Shell takes venture fund into 'explosive' Chinese market

By Karolin Schaps

AMSTERDAM (Reuters) - Royal Dutch Shell is opening the first Chinese office of its venture capital fund and recruiting three local investment staff there to tap a market where it sees "explosive" growth, the head of the business told Reuters on Thursday.

Shell Technology Ventures (STV), internally known as "Stevie", is the oil major's vehicle through which it seeks to stay on top of technological changes in the energy market that could threaten its business, and provide new areas for growth.

The 20-year-old fund has made a notable switch from its traditionally oil-oriented investments to experimenting in businesses completely new to the oil giant, such as generating electricity using kites or optimising delivery services.

STV is now taking aim at the huge Chinese market, searching for profitable start-ups, as well as helping to bring Western technology to Chinese customers.

"The Chinese venture market is booming, exploding is a better word," STV Managing Director Geert van de Wouw told Reuters in an interview in Amsterdam, outlining the fund's expansion plans and its investment criteria.

"What you see now is Chinese engineers based in Silicon Valley and Europe that see market opportunities and go back to China to set up their own shops," he said.

Shanghai will host STV's sixth global office and add three more employees to a staff of 24. STV has so far invested in China through GRC SinoGreen Fund, a Chinese greentech venture capital fund targeting energy and materials-related start-ups.

Van de Wouw did not disclose STV's size but said it typically invested $2.5 million to $5 million during the initial investment phase, with up to $20 million over the full investment lifecycle.

Growing in China and adding more staff mean the fund will accelerate investments. "We are going to do more deals," he said. In 2016, the fund invested in eight start-ups.

The growing electrification of the world's energy systems, coupled with decentralised production and demand for cleaner fuels means large, traditional energy companies like Shell are forced to explore new business models.

"STV is really a strategic resource where we are the window to the world for Shell New Energies to give insights into how the new energy domain will develop," van de Wouw said.

The fund is weighing investments in areas like battery storage, using solar power generation for micro grids and even smart mobility that van de Wouw said he expected to be dominated by autonomous, electric vehicles.

Shell has already tapped some of its fund's investments for application within its own business. For example, it used its investment in German logistics company Tiramizoo to optimise its retail business in the Philippines, saving the company costs.

A team of implementation managers ensures more of STV's start-ups can bring fresh ideas to Shell as its diversifies from its oil roots.

(Reporting by Karolin Schaps; Editing by Edmund Blair)