The oil and gas business is technologically challenging, data-heavy, and traditionally ignored by venture capitalists.
But a few firms are looking to change that with a new concentration on software and services that would help improve economics and bring visibility to an industry that technology investors have long overlooked.
During the “clean technology” investment boom, which lasted roughly from 2005 and 2009, investors of all stripes committed significant capital to renewable technologies, including biofuel production, solar panels, new battery technologies, and fuel cells. At the time, investors even placed a few bets on technologies that would improve oil and gas exploration (sometimes with disastrous results) — but those deals were the exception rather than the rule.
However, over the past year, as the U.S. reclaimed the top spot as the world’s largest producer of oil and gas, investors’ interest in backing oil and gas deals has become slightly less anemic, according to CrunchBase data.
Investment firms are now increasingly willing to invest in technologies that will improve business operations for oil and gas companies — a shift that should be welcome for both tech investors and oil companies.
Krishna K. Gupta, the co-founder of Romulus Capital, an early stage investment firm with its roots buried deep in the Ivy League halls of Harvard and the corridors of MIT, is not your typical oil investor. Still, the opportunity presented by a $5 trillion global business is too good to pass up, and Gupta is definitely interested.
“People haven’t really solved all the data problems in the energy industry,” says Gupta. He pointed to companies like RunTitle, an Austin Ventures portfolio company that helps companies discover who owns mineral rights, a crucial — and opaque — part of the industry, as an example of how data solutions can create efficiencies for the industry. David Blumberg, the founder of Blumberg Capital, also expressed interest in the energy sector. In an interview, Blumberg said the sector represented an interesting opportunity for technology investors.
“There’s a bunch of big data to do in oil and gas,” says Mike Dodd, a partner with Austin Ventures. “We’re looking at a ton of deals in that market.”
For investors like Hemant Taneja, a managing director with General Catalyst Partners who invested in several clean technology companies during the run-up of investor interest, the best approach to energy is one that takes into account renewables and hydrocarbons. “The biggest opportunity in oil is to activate our abandoned oil reserves with anthropogenic sources of CO2,” Taneja writes in an email.
As for the fracking revolution — if it’s done safely, without methane leaks, and developed responsibly, then there’s a benefit, according to Taneja. “If we blow it in gas plants over the next 100 years, that is less interesting than using it to “firm up” renewables, provide some replacement for coal (power) and for oil (transportation). Overall we need to use gas responsibly… don’t be too dependent on it or any other energy sources (think portfolio) and also use it in a way that it’s a bridge to renewable sources being used at scale.”
Still, oil and gas has a long way to go before it approaches the level of investment that other multi-billion dollar industries have claimed among venture capitalists. Since 2008, the most capital committed to startups targeting the sector was $194 million, in the fourth quarter of 2013 — the moment when the U.S. Energy Information Agency predicted the U.S. would become the number one producer in the world.
Photo via Flickr user Clinton Steeds