On October 30, 2015 the Securities and Exchange Commission (SEC) passed new rules, and amendments to existing rules, that have already had a profound impact on the future of the U.S. capital market. These rules have been under consideration and deliberation for 4+ years under the name Title III of the JOBS Act (aka Regulation Crowdfunding). They permit companies to offer and sell securities through equity-crowdfunding to a much wider definition of investors than ever before. These new rules have two primary purposes, 1) to assist in the capitalization of start-up and emerging growth companies (thereby creating jobs), and 2) to provide investment opportunities, with appropriate protections, for a new class of investors (aka "the crowd"). These new rules officially took effect on May 16. 2016 for companies who had met all of the SEC criteria for offering investments under these rules.
Crowdfunding is already a $34B global business (2015) and is projected, by analysts, to surpass venture capital in 2016. It is also projected to grow dramatically worldwide in the coming years(1). This is a really big deal that has gone relatively unnoticed by most of the U.S. population, but this changed dramatically on May 16th of this year.
While most agree that funding companies through the "crowd" is an exciting new frontier for the capital markets, many (if not most) warn of the perceived risks associated with this type of investment. However, the statistics and associated risks cited are usually those attributed to start-up companies where 50%-90% (depending on the industry) fail within the first few years. The reasons for failure vary from incompetence to lack of experience.
"My formula for success is rise early, work hard, and strike oil." -J. Paul Getty
Of all the industries where equity-crowdfunding is being introduced, one industry appears to be ideally suited....Energy, and specifically the Oil & Gas production segment of Energy. This is true for several reasons:
- Oil & Gas is a well understood investment class that has been around for a very long time. It is a tangible commodity that is vital to the global economy.
- Investors can participate directly in the success of a single well or multiple wells depending on deal configuration.
- Oil & Gas projects can be configured in a variety of ways with a variety of risk profiles from existing production to exploratory. ROI is correspondingly various.
- The risk of Oil & Gas projects can be, and often is, hedged against with existing production, thereby greatly mitigating risk.
- Oil & Gas projects, like any investment, have risk, but less than most start-up companies.
- Oil & Gas projects can provide monthly cash flow, depending on production, reserves and the price of oil, and wells can produce for many years.
- New techniques and advanced technologies are being developed and deployed at a feverish pace to increase production, reduce costs, and decrease the risk of Oil & Gas.
I know what you're thinking....."but what about the current low oil prices?" Excellent question, and easily addressed in an earlier article on this subject entitled "Who in their Right Mind Invests in Oil at these low Prices?"
As stated earlier, May 16th, 2016 was an important and exciting financial date that has been a long time coming. The new SEC rules are "the biggest change to securities laws in over 80 years." Crudefunders was recently selected as one of only a handful of companies picked to represent equity-crowdfunding portals on Capital Hill before Congressional leaders, and Crudefunders was the only such company for the Oil & Gas industry.
For more information, check out Crudefunders at www.Crudefunders.com.
Bill Wimberley, Founder & Sr. Managing Partner - Visioneering Associates - Dallas, Texas, USA.
