Crudefunders

Posted: Monday, February 23, 2015 5:23 pm | Updated: 11:24 pm, Mon Feb 23, 2015.

Crowdfunding via the Internet has funded businesses, movies and numerous charity projects.

Now there’s a platform for Texans who want a piece of the state’s oil and gas pie.

David Taylor, co-founder of Crudefunders, explained that crowdfunding projects that have drawn headlines are “reward-based,” whereby participants might receive something in return for their money.

“Uber was launched through crowdfunding and is now valued at $40 billion, but those investors didn’t get part of that $40 billion,” he pointed out.

Houston’s Crudefunders, on the other hand, allows direct investment in a Texas energy company for as little as $1,000. Investment portfolios can focus on mineral leasing, drilling and testing, completion services or oilfield services.

Crudefunders was chosen because the industry offers tangible assets, high liquidity and high rewards, he said.

Taylor said Crudefunders’ genesis began in 2012 when President Obama signed the Jumpstart Our Business Startups, or JOBS, Act, which legalized equity crowdfunding and enabling individuals to invest in start-up companies in exchange for equity.

Texas passed the Title III portion of the act that will allow direct investment in oil well drilling projects to non-accredited investors via the Texas Intrastate Crowdfunding Exemption.

He defines non-accredited investors as any investor, who is allowed to invest a minimum of $1,000 but no more than $5,000 per year per project. They can access projects seeking up to $1 million.

“That could be a shallow well, a recompletion, funding a service company or royalty company or a salt water disposal well,” he said.

Such smaller projects “are our sweet spot,” he added.

Accredited investors, or those who have a net worth of $1 million or more, not including homes, or earn more than $200,000 a year for individuals or $300,000 for couples. There is no cap on the amount they can invest in startups.

Taylor said Crudefunders is limited to companies that are based and operate in Texas; projects are limited to those carried out in Texas and investors must be Texas residents.

“By law, we have to make sure investors are Texas residents,” he said.

There is a high level of transparency about the projects that seek funding, Taylor said.

The website has a portal that contains as much information as possible about projects seeking funding, from logs to 2-D and 3-D seismic reports, maps, regulatory filings, biographies on the companies, production reports and operation updates.

There are also videos designed to educate potential investors about the basics of the oil and gas industry, with primers on vertical drilling, log analysis and the anatomy of a drilling rig.

Crudefunders has recruited a team of industry experts, including from Midland, that represent all faces, including geoscientists, drillers, operators, attorneys, accountants and financial experts.

“We pride ourselves on the quality of the staff that investigates companies,” Taylor said.

He stressed that the high level of transparency and research does not entirely eliminate risk. An investor’s money is held in escrow until a project is completely funded. If the project fails to complete its funding, the money is returned. But if the project is funded, proceeds and is unsuccessful, that money is lost.

The company acts as a liaison between the company and the investor, holding revenues in escrow until it is distributed to investors. Crudefunders distributes the revenues and at the end of the year and provides K1 tax statements or IRS Form 1099s.

Even though oil prices have fallen to $50 a barrel, now is an ideal time to invest in the industry, he said.