The top presentation at Start Houston‘s September Demo Day was eOilBoom, a new crowdfunding site for oil and gas. Their premise is simple: internet based crowdfunding for oil and gas investments in producing wells and in drilling new wells. The site allows accredited investors to put in as little as $5,000 in each project. This enables the investor to spread her investment across many different properties and to diversify her risk.
eOilBoom has two categories of investment: production deals and drilling deals. For the former, investors purchase a stake in a property that is already producing oil and/or gas. Typically, these properties will have several years of production data already, which reduces the risk (though all investments are risky). For drilling deals, the investor is betting that the new well will produce oil and/or gas. According to Rodney Giles, president of eOilBoom, new technology greatly reduces the risk of dry holes, and new wells have a 70% success rate. In both types of deals, the investor owns a fraction of the rights to the property. eOilBoom acts as a broker and takes a 5% cut.
The great part about this idea is that oil and gas investing is already setup for fractional ownership of interests, and many investors are already familiar with owning only part of a well. eOilBoom is simply taking the next logical step, using the internet to find investors and fund new deals. Currently, investment is limited only to accredited investors. Once the SEC issues the new rules for non-accredited investors to invest in private equity, eOilBoom plans to open enrollment to all comers.
This startup is a winner for two reasons. First, it is working within energy, one of Houston’s natural strengths. This city has the expertise to help eOilBoom succeed, and hopefully, they will be able to find sufficient funding here to achieve a successful exit. Second, it democratizes the process of investing in oil and gas, similar to what E*Trade and Vanguard have done for investing in stocks on the internet.
Finally, a big thanks to Start Houston for hosting another great Demo Day. Keep up the good work. Everyone else, get out there and #startsomething.
Edit: Note that there is no official ‘winner’ at Demo Day. This is just my opinion based on the obvious.