EnergyFunders Review: Oil and Gas Investing Simplified
Published Jan 22, 2022•Updated Jun 21, 2022
Looking for an EnergyFunders review to help you decide whether it's the right kind of investment for you?
Oil and gas investments are a good option for portfolio diversification while helping you invest in the most traded commodity in the world. However, investing in oil and gas production and operations can be complicated, expensive, and risky.
That’s how EnergyFunders differentiates itself from any other energy company.
When you invest in EnergyFunders, you invest in a company that purchases oil and gas assets across the United States. The exact projects will change as the company acquires more and sells others. EnergyFunders is also intending to invest in off-the-grid Bitcoin mining and has partnered with crypto-mining experts to create mobile Bitcoin mining units at their natural gas well locations.
The platform cuts out the middleman and only makes money when investors make money.
In this detailed review, we’ll cover everything you need to know about the EnergyFunders investment platform, including how it works, the fees, potential returns, pros and cons, and more.
Borrow our cheat sheet
2% on average
Minimum to invest
Pros and cons:
Significant tax benefits
Projects evaluated by third-party engineers to ensure things are done above board
Relatively low minimum investment of $5,000
Potential for high returns
Open to non-US investors
Low correlation with traditional assets like stocks
Non-accredited investors can not participate
Inconsistent monthly distributions - due to fluctuating oil prices
Illiquid investment - can't move cash out whenever you want
What is EnergyFunders?
EnergyFunders was founded in 2013 by Philip Racusin, Roger Gingell, Michael Racusin, and Casey Minshew. The company was acquired in 2020 by Paleo Resources and is headquartered in Texas.
Now headed by CEO Laura Pommer, the EnergyFunders platform is the first fintech firm to offer direct equity crowdfunding investments in oil and gas with a focus on drilling opportunities open to accredited investors.
Through EnergyFunders’ online platform, investors can invest in oil and gas and drilling opportunities. The fund has also partnered with crypto-mining experts to create mobile Bitcoin mining units at their natural gas well locations. The Bitcoin mines will convert wellsite natural gas into Bitcoin.
Once you’ve invested with EnergyFunders, you can expect to start receiving monthly distributions within six months of the close of the fund. In addition to the potential to earn high returns, investors can also take advantage of significant oil and gas tax advantages.
Classified as Regulation D offering by the Securities Act, EnergyFunders can raise funds through a public offering faster and at a lower cost.
How does EnergyFunders work?
In the past, investing in oil and gas was largely reserved for the wealthy. EnergyFunders is trying to break down the old school barriers and make the process of investing in oil and gas more accessible and much more simple.
EnergyFunders works with oil and gas operators to identify investments. Their seasoned geologists, engineers, and operational advisors are responsible for vetting projects. Assets are selected based on geologic and engineering analysis, risk evaluations, project projections, and economic evaluations. EnergyFunders investments are focused on low-risk, proven reserves.
Once you’ve signed up as an investor, you can log in to the EnergyFunders portal to choose from available deals. You have the option to invest as either a General or Limited Partner. The minimum investment for General Partners is $50,000, and there is no liability cap. The minimum investment for a Limited Partner is $5,000, and liability is capped at the member’s total investment amount.
Once the fund starts to generate cash (usually within six months of the close of each fund), you will start to see payouts of approximately 10% net income in monthly distributions. At the end of the fund life, the remaining investment might be liquidated and returned back to investors (net of expenses and fees).
Who can invest with EnergyFunders?
Currently, only accredited investors can invest with EnergyFunders. This includes international investors.
To be classified as an accredited investor you typically either need to have a net worth exceeding $1 million (excluding your primary residence) or you must have an earned income of over $200,000 for the prior two years ($300,000 for a married couple). You will have to provide that you are an accredited investor before you begin investing. Licensed financial professionals are also able to invest with EnergyFunders even if they do not meet the other accreditation criteria.
Where EnergyFunders gets it right
As EnergyFunders explains, in the 1970s there were major gas shortages as a result of the OPEC cartel cutting off the oil supply. In response, the federal government started to offer significant tax breaks to encourage Americans to invest in domestic oil and gas production. Bitcoin mining also offers potential tax deductions. You can learn more about the specific tax benefits you can enjoy when you invest with EnergyFunders here.
Extensive vetting process
All of EnergyFunders projects are subject to a three-stage vetting process. Projects are screened by expert teams of geologists and engineers.
In addition to monthly distributions, you also have the opportunity to earn more if the remaining assets are liquidated at the end of the Fund life.
Where EnergyFunders could do better
As of now, you can expect your principal investment to be tied up for approximately three to five years. However, EnergyFunders is partnering with tZERO to provide investors with the opportunity for potential liquidity and a continuous trading environment.
Not open to non-accredited investors
Unfortunately, you have to be an accredited investor to participate. In most cases, this means you either have to have a solid income of over $200,000 for the past two years ($300,000 if you’re married), or a net worth of over $1 million (excluding your primary residence). There are currently no opportunities for non-accredited investors to get in on the action.
Relatively short history
EnergyFunders has been around since 2013 but was acquired by Paleo Resources in 2020. At this time, major changes were made to the company’s board and management. While this is not necessarily something to be concerned about, the relatively short track record may be something that investors want to consider and look into.
Can you really make money on EnergyFunders?
Yes, there is an opportunity to make money with EnergyFunders. You can expect to target a 30% to 100% internal rate of return (IRR) plus a 10% to 12% yield paid out monthly while reinvesting. The reinvestment phase is roughly two years. In year three, EnergyFunders typically shifts to 100% net income distributions. Somewhere in years three to five, the remaining assets will be liquidated and proceeds will be distributed back to investors, after fees and expenses.
According to EnergyFunders projected returns, if you invest in their oil and gas projects you can expect a target IRR of 25% to 30% for proven undeveloped drilling projects with a target allocation of 35%. For proven developed purchase projects investors can expect a target IRR of 15% with a 15% target allocation. Investing in Bitcoin mining, specifically in mobile wellsite mining, has a targeted IRR of 100% to 300% and a target allocation of 50%.
How do I make money with EnergyFunders?
When your investment begins to generate cash (usually within six months of the close of each fund), EnergyFunders will pay out approximately 10% of net income in distributions each month. The remaining net income is retained for reinvestment opportunities. Reinvestments stop as the Fund reaches its target life of three to five years and at this time, 100% of the net income is distributed. When the Fund lifecycle is complete, EnergyFunders might liquidate the remaining investment and distribute the remaining amount back to investors, after expenses and fees.
EnergyFunders charges an annual management fee of 2% as well as a one-time origination fee based on the size of your investment. Investments of $5k to $99k have a 5% origination fee. The larger the investment, the lower the fee. Investments over $1 million are charged a 1% fee.
How do I cash out with EnergyFunders?
You can expect your money to be tied up in an EnregyFunders fund for approximately three to five years. At this time, you can not sell your shares in the fund after you have invested. However, EnergyFunders is planning to partner with tZERO, an alternative trading system that is powered by blockchain technology. The tZERO partnership will help to provide more liquidity to investors and to establish a continuous trading environment for private market assets. This would give investors the opportunity to buy in and out of the funds in a shorter period of time.
EnergyFunders vs traditional investing
Including alternative investments like oil and gas can help to create a more balanced investment portfolio. Investing in commodities like oil and gas can also help to hedge against inflation. The same can be true for investing in Bitcoin but it’s never a sure bet.
Unlike traditional investments, you can expect less liquidity when you invest with EnergyFunders. On average, your money will be invested for a period of three to five years. When you invest in the stock market, you can trade your shares on the same day. However, EnergyFunders is working on increasing liquidity through its partnership with tZERO.
While EnergyFunders is working to make investing in oil and gas more accessible, compared to traditional investments, the barrier to entry is comparably very high. To invest with EnergyFunders you need to be an accredited investor with a minimum of $5,000 to invest. The stock market is open to everyone, and you can start investing with an online brokerage for as little as a few dollars.
What other people are saying about EnergyFunders
People aren’t saying much about EnergyFunders when it comes to social media. However, EnergyFunders has been in the news for its partnership with tZERO. In May 2021, Business Wire documented the partnership between EnergyFunders and tZERO, to digitize $25 million of equity interest in EnergyFunders Yield Fund I. This is exciting because it can help to improve the liquidity of a formerly illiquid investment. EnergyFunders was also in the news in 2020 when it was acquired by Paleo Resources and announced changes to its board and management.
In December 2021, the company's new CEO, Laura Pommer, was also featured in the San Antonio Business Journal.
Are there other apps like EnergyFunders?
Currently, there aren’t many other online investment companies that offer crowdfunding opportunities in oil and gas investing. However, there are many investment apps that allow investors to get involved in cryptocurrencies and other commodities. Bitcoin is offered as part of EnergyFunders Yield Fund in an effort to increase returns on investments and add overall diversification.
Investing in commodities like oil and gas or gold has traditionally only been available to the very wealthy. However, companies like EnergyFunders and Vaulted are making commodity investing more accessible and affordable. Vaulted is even more affordable than EnergyFunders with a minimum investment of only $10. Unlike EnergyFunders, Vaulted is open to non-accredited investors. eToro is an online social trading platform for cryptocurrencies. The minimum investment amount is $50 and it is open to non-accredited investors.
You can use MoneyMade to check out these competing investment platforms along with 160+ other investment platforms.
Our hot take on EnergyFunders
EnergyFunders provides accredited investors with a simplified way to invest in private market energy deals. For those that are interested in including an alternative investment like oil and gas into their portfolio, EnergyFunders provides a unique opportunity to do so.
Those who have thought about investing with EnergyFunders but were not keen on the overall lack of liquidity might want to reconsider now that the company has partnered with tZERO. EnergyFunders also gives investors the ability to invest in energy and crypto mining together.
While there is the opportunity to earn 30% to 100% IRRs, plus monthly cash distributions, it is important that investors also explore the risks involved before making a decision. Like any investment, there are pros and cons, and it's necessary to do your research so you understand what you are getting yourself into.
I’m in! How do I sign up for EnergyFunders?
1. Join MoneyMade (for free)
Sign up for a MoneyMade account so you can track and manage all of your online investments in one convenient place.
2. Sign up for an EnergyFunders account
To sign up for an EnergyFunders account, simply click on the green “invest” button.
3. Fill in your details
You will be asked to fill in some personal details including your name, phone number, and email address. After you submit your information you will receive an email to verify your account.
4. Link your bank account and verify your status
Before you can begin investing, you will have to link your bank account and verify your accreditation status. You will have to provide documentation to demonstrate that you qualify as an accredited investor.
5. Browse available offerings and invest
Once you are all verified and ready to go, you can browse the available investment offerings.
6. Potentially trade
Remember with the tZERO market platform, you may have the option to trade in and out.
7. Return to MoneyMade to track all of your investments in one place
Don’t forget to come back to MoneyMade to track your EnergyFunders investments along with all of your other investments and get a personalized risk score.
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