Some new legislation has gone into effect that will change the way oil and gas companies are funded. In the past, the only people who could invest in energy companies were accredited investors, meaning someone who makes over $200,000 per year or has a net worth of over $1 million. Now, the rules are changing and Addison-based Crude Funders, a product of business incubator the Addison TreeHouse, is changing the way Texas oil and gas companies do business.
Crude Funders Co-founder Allan Fine explains, “In 2012, there was a bill that was passed that allows for the ability to raise funds amongst the entire population, not just accredited investors for certain investments. It’ s been passed but it still under review by the FCC. In anticipation of that, Texas has passed their own version of this law that they call the Texas Intrastate Crowdfunding Act.”
Fine points out that there are only about 300,000 accredited investors in the state of Texas that are eligible to participate in such projects and now thanks to the new legislation that number is 20 plus million eligible residents. That is where Crude Funders comes in. Acting as a portal to raise funds for oil and gas companies over the internet, Crude Funders has found its niche — it’s like Kickstarter for oil rigs.
“The difference,” says Fine, “is that in a Kickstarter campaign, if you donate money or help fund a project, you don’t actually own a piece of that company. You might like the gadget or movie or something and you help back it. You might get a t-shirt or you might be able to pre-purchase or good, but the difference is in this case a group of people will pool their money in crowdfunding and for that they would get an ownership interest in a producing well. We will be the first company within the state of Texas to do this for oil and gas ventures.”
Crude Funders is a marketplace where energy companies come to present a project. The Crude Funder team then helps that company show their project on the Crude Funders website, and if the community of investors like the project and fund it successfully, then that particular energy company would have the funds needed to go out and drill.
“The way funds are raised normally for these types of things — it’s an antiquated means of raising money,” says Fine. “The way oil and gas companies work now, they might go to a promotion company. They have a group of guys that do nothing but make phone calls all day long and they call accredited investors and get them to subsidize projects. Basically, we’re applying new technology to an antiquated industry.”
David Hollowell of Crude Funders explains that the company goes beyond that and is also a source of education for potential investors.
“We have on our site videos and information they can read so they can have a much better understanding of what they’re getting involved with and how it works and how the industry works,” Hollowell says. “In addition, for an opportunity for them to invest, which didn’t exist in the past, we are also a complete third party source of information about the industry. As far as the companies themselves, traditionally they have been very limited. A small oil company has been limited to what they can do with funds from friends and family or industry funding, but they have not had the ability to raise funds from the general public because it’s just been too expensive and the amount of scrutiny that’s involved is just too onerous for small companies. What we’re doing is giving them a new outlet to reach out to the general public.”
Hollowell also details the great lengths Crude Funders goes to to protect potential investors, from checking fraud on the part of any company that wants to present a project to their portal, to background and securities checks, to safeguarding the accounts of potential investors.
“Each one of [the investors],” says Hollowell, “has their own established escrow account. As they work with Crude Funders, they fund into that escrow account and that money is not released to the operator until the entire amount is raised.”
The company itself will be launching soon and is composed of about 15 people from all disciplines of business. Fine has a background in technology, Hollowell has oil and gas and also real estate experience, and co-founder David Taylor is an entrepreneur.
Fine anticipates success.
“The price of oil is low right now, but that is actually a very good thing for the investor,” Fine explains. “Lease rates are down right now and cost to drill is down, so now is actually a really good time for the individual investor to participate because when you fund a drilling project it’s based on the economics of when you drill. They drill for several years, so as the price of oil goes back up so does the return on your investment. We’re very excited about what we’re doing.”
Hollowell agrees, saying, “The reality is that for the small investor and for the small operator, it’s an excellent time to be involved.”
The company also has no plans to leave the area.
“We’re tied to Addison,” says Fine. “We’re looking for offices here; we’d love to stay in Addison. We think it’s a great community. The TreeHouse has been wonderful and very supportive of us and we’re excited to get out there. ”
It’s exciting to have such an innovative project going on in the North Dallas Corridor and the company’s launch is very much anticipated. The website is up and running if you are interested in investing in your own oil rig as the company prepares to enter the market.