From Creative Destruction To Creative Disruption
It was 2014, and something wasn’t adding up...
I’d been covering the oil and gas industry for about three
years.
The companies.
Tracking where the money was going.
The commodity prices themselves.
All of it.
If you want to get your head deep into the weeds of an
industry, there’s no better way than tracking the press releases, slide decks,
earnings announcements and every other scrap of information announced by the
companies in that space, summarizing anything important and cranking out a
newsletter about it every few weeks.
Actually, I take that back. There’s one better way.
Cranking out THREE newsletters about it every few weeks.
So that’s what I was doing.
Paying my dues, cranking out copy for a Houston land
brokerage that had built a pretty good brand by staying in front of the
wildcatters and landmen, pushing out industry updates to them every few days.
And filling up all the ad space in between with deals we
were working.
While it was a grind, this was all fascinating to me.
I’d already gotten my law degree, practiced for a year (and hated
it), gone to work for a New York stock brokerage working the hedge fund scene,
picked up several securities licenses and become a stock analyst along the way,
but I’d never had the opportunity to get this far into the nuts and bolts of a
specific industry.
And I loved it.
I loved energy.
It makes the world go round.
Every other industry depends on it in one way or another.
It is literally both the blood and lubricant of
commerce.
On top of all that, this was THE FRACK BOOM BABY!
A little known independent oil company, Mitchell Energy, had
cracked the code by combining two already known drilling practices—horizontal
(sideways) drilling and hydraulic fracturing (using water, other substances and
high pressure to break up rock to release the oil inside)—to unlock America’s
oil reserves in a way not seen in generations.
Dozens of other companies piggybacked and refined the
process, making energy one of the hottest sectors in the market for several
years.
But like I said earlier…
Something wasn’t adding up.
$100 Oil Forever, and Other Lies
One of the three newsletters I was writing for this
brokerage focused on price trends in oil and gas. Coming out every other week,
it was called—appropriately enough—QuickPrice.
And while QuickPrice was about the prices of oil and gas, we
were ultimately trying to add some value to folks in terms of what was driving
those prices, so we covered supply and demand numbers as well.
US demand was pretty good, rising with the economy a few
percent per year. And that was also being supported globally by developing
world growth in China and India.
But whatever it was doing, it damn sure wasn’t doing this:
Source: https://www.eia.gov/todayinenergy/detail.php?id=63824
Just look at that graph.
From around the end of 2011 to the beginning of 2015, the fracking boom drove US oil production from around 5.5 million barrels of domestic oil production per day to around 9.5 million.
That’s a 73% increase in US oil supply in just over three years, in a market that had previously been well-balanced for decades:
Noticing these trends, I rationally concluded that oil prices were setting up to implode.
So I started writing about it.
I figured my land brokerage would look brilliant.
Because as obvious as this problem was for anybody bothering to look at two simple charts, NOBODY was talking about it.
At the beginning of 2013, the World Bank projected $100 barrel oil for 2014. Then in 2014, as the imbalance became significantly worse, they actually INcreased their price forecast to $106 for 2014, projecting 2015 prices at $104.1
But hey, at least the World Bank was just bad at its job, and not ethically compromised.
Because every investment bank on the Street was parroting the same numbers.
Goldman Sachs, Bank of America, Morgan Stanley, they all were preaching ‘$100/barrel forever’.2
So… what the heck?
Into all of this comes yours truly, with his big idea to shake things up with a dose of truth.
Turns out that my land brokerage felt the same way about stating the obvious that the rest of the industry and the investment banks did.
“We’re not paying you to forecast, Sean. Just write about what already happened.”
They refused to run my projections.
But at least we were only reporting to oil industry players, who should have known better.
Those investment banks were putting out their research with a straight face TO INVESTORS, with the expectation that they would take it SERIOUSLY, all at the same time they were doing business in commodities like oil, and with the oil companies they were covering and recommending.
And many investors DID listen to the banks.
And lost their shirts.
Because there’s only so much smoke and mirrors the market can take before the fundamentals take over, and when they do, they can do it with a vengeance.
Anyway, aside from shorting the hell out of crude oil (which I did), and telling anyone who would listen (which I also did), there wasn’t much more I could do to get the word out through the old land brokerage.
And that’s how I got into financial publishing for regular investors in the first place.
I took my show on the road—teaming up with a similarly frustrated coal analyst from Wood Mackenzie along the way—and set up shop at a publisher called Money Map Press to write honestly about energy markets.
And while we didn’t connect in time to ride the initial oil collapse down together, there were plenty of independent oil companies still reeling from the unfolding shockwave.
So I built a fundamental screener called QTI, which stood for Quarters Til Insolvency.
As it says in the name, QTI projected—to the quarter—when any given oil company was slated to run out of money after figuring in operating spend, capex, interest payments and outstanding loans coming due.
QTI was SUPER accurate, and my colleague Kent Moors the oil writer used it repeatedly for his readers’ benefit, predicting several corporate implosions.
A Face in the Crowd
That shift to covering markets for regular investors instead of corporations and funds would teach me a lot, primarily about how to communicate with people about markets.
It would also lead directly to my getting involved in crowdfunding.
I was with Money Map Press for about five years.
And toward the end of that run, Money Map launched a new service focusing on private deals, called Angels and Entrepreneurs.
Nobody in financial publishing had ever launched a newsletter around equity crowdfunding before.
People loved it, and signed up hand over fist to hear about the latest deals.
And more importantly to me as a possible source of those deals through my corporate and financial market ties, the companies loved the coverage. It drove millions into their deals.
While it was early days (the first platforms started getting their initial traction around 2017-2018, and A&E started in 2019), I was really drawn to this idea of helping regular people get access to the part of the market where 90% or more of company value is created.
And I still had my securities licenses.
So, in 2020, I partnered with a broker-dealer who was interested in crowd, started vetting deals, and introducing them to newsletters that I knew could be extremely impactful toward how successful their offerings might be.
To be honest, the first wave of companies using crowdfunding were mostly pre-revenue ideas on the back of napkins.
It took a while for the space to mature, for more advanced companies to learn about crowd, and for them to see how it might be a better option for them than chasing oftentimes pushy, stingy venture capital money.
That process is still going on today.
But now that crowd has been around for a while, the deal quality has improved, and it just keeps getting better and better each year.
Based on the latest available information from Disruptors Network’s crowd data partner CClear, over 45% of Reg CF crowd issuers have been in business for three years or longer, and 63% of them have revenues.3
That’s up from just 37% post-rev as of 2016.
And those revenues aren’t chump change either.
According to CClear, average Reg CF issuer average annual revenues have ~5x’d since 2016 from around $200,000/year to just shy of $1.0 million per year as of 2023.
Source: CClear
So I’m happy to say that, once again, I’m fortunate enough to have made a good call early.
We’re right here, at the forefront of another exciting—and hopefully—profitable trend.
‘Til next time, when we’ll dive in to how conditions were ripe for crowdfunding to shake up the current, rigged system of investing.
Sean Levine
Managing Editor
Disruptor Nation
2https://www.icis.com/chemicals-and-the-economy/2013/12/will-oil-prices-stay-100bbl-forever/
3Data courtesy of CClear
