DO'S, DON'TS, AND TIPS FOR OIL & GAS AND ENERGY STARTUPS
The state of Texas is a major hub for the energy industry and Houston is at the heart of the action. Energy startups are different from IT startups. The people are different, the culture is different, the investment style is different, and what people are looking for is different. However, the core principles are still the same. Here are some tips and things to do/not do.
1. UNDERSTAND THE STRUCTURE OF INVESTMENTS
A. Stage agnostic
The big players can come in at any stage--seed to growth stage; doesn't matter.
B. Lead or follow
A few won't lead. A few won't follow. But most of the big players in this industry can either lead or follow. It doesn't matter.
C. Size of investments
The amounts are larger with energy investments than in other industries. There are a lot of massive companies in this industry.
Average size investment per round: $2M to $5M. Some go to $10M per round.
Average size investment total: $30M. Some may be up to $50M+.
2. PAY ATTENTION TO IP
There are more barriers to entry in the energy venture scene than say the app creation scene. This is neither good nor bad. It just is. This also means that IP may likely become extremely important. There's a lot of technical know-how and this and that going on. Make sure the IP really belongs to the company and not any one individual. Assign any IP created prior to incorporation to the company. Have agreements in place that IP created after the company is created belongs to the company. A startup attorney can help you with these kinds of agreements.
3. AVOID NON-DILUTIVE EARLY FINANCING
Early non-dilutive financing is bullshit. I see it a lot and can tell you that it's a turn-off to future, potentially key investors. Non-dilutive financing doesn't do anything beyond giving you money. You want more than that. You want to utilize the strategic abilities of future, powerful investors.
4. MAKE SURE TO VEST SHARES
A lot of founders in the energy industry are extremely capable and in demand. There's a lot of potential to jump ship quickly. Make sure founder shares are set to a vesting schedule.
Vesting is always important, but it's especially important here.
5. KNOW WHAT THE INVESTORS ARE LOOKING FOR
Here is what investors have told me they are looking for these days: optimization techniques, cost-reduction, and data. These are the hot areas. If your product addresses some or all of these areas, that's a big bonus.
6. USE YOUR INVESTORS STRATEGICALLY
If your product is good, useful, your stuff is in order, and you know how to sell, you WILL get funding. In such a scenario, you have the privilege of being more selective. Figure out what your potential investors can do for you besides give you money. Do they have global connections? Where can they help you strategically in the marketplace? They will be a part of your team.
7. FIND THE PAIN POINT AND SOLVE IT
This is what VC investors are looking to see. They want to know if you can identify a problem or pain point that is irritating in the industry and if you can solve it simply and elegantly.
8. MAKE YOUR PRODUCT PAINLESS TO DEPLOY
I've seen this numerous times. Some company will have some neat product that an energy company can use, but it's a bitch for them to change their existing system to be able to use it.
Some of the companies that you will use your product may be substantial in size. This means certain challenges. Big companies can be slow to move and slow to adopt new products and techniques. Of course they have an advantage over small companies in that they are more capable in actually being able to use new techniques. Some companies are extremely expansive. Address how your product can be launched into a large company.
At the end of the day, the important things are still the important things regardless of what industry you're involved in. Act with killer efficiency and treat others with integrity, respect and sincerity. Get shit done. You'll go far.