Oil & Gas: The Next Big Thing in CrowdFinance?

FRISCO, Texas - March 1, 2016 - PRLog -- Why is it that Peer to Peer lending and Real Estate crowdfunding have seen such explosive growth in such a short period of time? What asset class will be next? In my last blog, The Age Old Act of Crowdfunding, I made the argument that we have been “crowdfunding” for decades, if not centuries, but now, through innovation, it’s just much more efficient. Why such explosive growth and widespread acceptance? I believe it has to do with familiarity.  Making a loan to a family member, friend or colleague is a deal that we’ve been crowdfunding since the dawn of time. We’ve all been asked or have had to ask for help, so the idea that we have a technology driven marketplace for just such a transaction makes sense to us all.  The same holds true for real estate. Maybe in a little different context but investing in real estate is an age old act as well. The idea of grouping capital together with others to buy a property is certainly familiar and crowdfunding real estate has been a simple concept for the crowd to grasp.

So what’s the next big thing in crowdfunding? No one can answer that question definitively, but what about the oil and gas sector?

Now I’m well aware of the unsavory image that comes to mind for some folks as they think about investing in oil and gas. Certainly, in a few instances over the last 30 to 40 years, some companies took a more aggressive approach than most, to put it mildly. Ever seen the movie The Wolf of Wall Street? In it are classic scenes of what is commonly referred to as “boiler rooms”, where dozens of over-the-top sales reps are aggressively calling and “CLOSING” on unsuspecting “investors” by pressuring them to buy the deal of the day. You’ve heard the stories if not experienced it yourself. The phone rings and some aggressive salesperson is on the other end of the line. “Have I got a deal for you! I’m Dave from Bob’s Oil and Gas and we have this once-in-a-lifetime opportunity to strike it rich in the oil patch! We can triple your money in 6 months with this honey hole we found…” Unfortunately, too many times unsuspecting investors are lured in by the hype being spewed from the other end of the line. It’s that type of scenario that has the crowdfunding industry reeling from its first suspected fraudulent campaign brought to us by Ascenergy. They we’re great at promoting their deal and raised $5 million very quickly with all the CNBC hype, etc. Unfortunately, it appears as though they had no intention of doing what they told their stakeholders they were going to do and allegedly walked away with millions of dollars. Perpetuating the stereotype, It is both terrible for the investors and gives a black eye to the crowdfunding marketplace that’s in its infancy.  Fortunately however, story plays out in a very small minority of instances in the vast marketplace of oil and gas investing.

So, what about crowdfunding oil and gas?

Did you know that up until just a few years ago, approximately 80% of domestic oil and gas production came from small firms with less than 10 employees? Many companies were initially funded by friends and family until they were able to grow large enough to attract the attention of the investment banks and private equity. They were typical small businesses who needed capital to start and grow. Said another way, they “crowdfunded” their projects to get off the ground.  The overwhelming majority of smaller, privately backed oil and gas companies do a great job for their investors and are still in need of capital.

I believe that crowdfunding holds great potential for the energy industry. In particular, crowdfunding can be a great alternative source of capital for those energy companies seeking less than $30 million as that segment of the industry is often overlooked by Private Equity. Much in the same way that Real Estate developers and operators have benefited from crowdfunding a portion of their projects, oil and gas companies have the same need for partners in their projects. For the investors, just as with real estate, they have the opportunity to participate alongside reputable operators, can diversify their exposure to multiple projects and operators and both parties have a potential win-win.

Since 2012 we’ve been helping our clients gain access to energy focused investments, and we’re one of the first companies to come to the market with an offering taking advantage of the JOBS Act. By not being tied to a specific platform, we believe we can gain access to a much wider audience. By acting as a fiduciary we vet hundreds of deals and choose only those that we believe give our partners and us the best potential for success. This last 18 months we’ve been patiently on the sidelines waiting for the market to settle in to the new normal. We’re just now starting to see some great deals in the oil patch that are too small for my buddies at the larger private equity firms to pursue. Firms are needing capital and investors are starting sense the opportunity as well. We think the time to act is now.

Is oil and gas the next big thing? We’re not waiting around to see!

All the Best,

Mark

Mark Mersman
Principal