Although oil prices have been trending upwards in recent weeks, many producers are still cautious and have cut back on exploration and drilling operations until prices rebound further. And yet it is an energy company, Ascenergy, that is currently ranked #1 on CNBC’s Crowdfinance 50 Index and has raised more than $3.5 million with another $2 million committed. This three-year-old energy startup has secured more financing than companies that operate in such hot areas as technology, healthcare or organic food.
Serial entrepreneur and founder and CEO of Ascenergy, Joey Gabaldon, tells us how he did it:
On choosing crowdfunding as a financing mechanism: We started with a “friends and family” offering in 2013 and raised about $900,000. Then we chose crowdfunding because it can be a very fast route to market without the expenses associated with other methods of fundraising. Most broker-dealers, for example, charge considerable upfront fees, monthly fees and success fees, while many crowdfunding sites charge nominal monthly fees from $100 to $300.
When selecting sites, we spoke with several other entrepreneurs, attended crowdfunding workshops and conferences and spent about a month reviewing more than 100 sites to find the three that we decided to work with. We started in July 2014 with Equitynet and Crowdfunder and then added Fundable.
We chose these sites because they are among the leaders in the crowdfunding industry. Crowdfunder has some excellent features to create a social buzz across their network, such as linking current investors to the offering. This provides transparency and “social proof” of the validity of the offering. They also periodically send newsletters on highly rated, vetted companies. Equitynet has other strengths, such as multiple ways to sort deals based on popularity, location, industry and funding traction. They also have a good business plan feature that helps investors vet the company.
On how to present the company on a crowdfunding site: Anyone can get started on a site within a few hours. That said, it’s important to invest as much time as needed to create a positive first impression. We spent hundreds of hours on our offering before posting it online, and we frequently refine our posting as we learn more about how to improve our messaging and appearance. Having some kind of “stamp of approval” by financial institutions that have performed due diligence is also a huge plus. Crowdfunding is like any successful sales campaign. To reach your audience, you must understand their needs, what they are looking for in an investment and their short- and long-term goals.
The crowdfunding started slowly. But once you start getting traction with your outbound marketing efforts, inbound becomes the main source of capital. Our largest investors range between $200,000 and $800,000. We are nearing our goal and will be closing the offering soon.
On how to target investors: We couldn’t precisely define our investor targets until we began fundraising. Then we quickly learned that our offering appeals to accredited angel investors seeking high-return potential with mitigated risk. As we understood our audience better, we shaped our materials to highlight the aspects of our deal that appealed to them the most.
We realized that the biggest barrier for most investors is concern about risk, and this is especially true in oil investing. We were looking for investors who did not want to worry about stock price fluctuations, drilling expenses and the other inherent risks associated with investing in oil. That’s why we created a royalty offering that pays investors directly from gross revenues rather than from profits. And we created a hedging program that allows investors to transfer their royalty interest to multiple wells, if necessary. If the first well doesn’t produce at anticipated levels, the investor’s interest rolls over to additional wells until our contractual payout is satisfied.
Current market conditions actually benefit our approach. Major producers today are primarily focused on drilling in shale formations, which comes with the considerable expense of fracking. Our reserves are in more traditional sandstone fields, which do not require the extensive fracking of shale operations. Plus, we can take advantage of idle equipment and service providers to keep costs down. Our break-even point is about $20 per barrel—much lower than the cost of producing a barrel of oil from shale. Even with higher oil prices, we’ll have the advantage of being a low-cost producer.
