Houston Ventures Founder on Investing in Energy Software Startups
Houston—Chip Davis founded Houston Ventures specifically to support what’s known as the “digital oilfield.”
In the last five years since it was spun out of Houston-based money management firm Sanger Morris Harris (now Edelman Financial Group), Houston Ventures has nurtured a small portfolio of technology startups that focus on software, IT networks, and analytics targeted to the energy industry.
“The whole sector is centrally planned and remotely executed,” Davis says. “If you could improve coordination into the field, you could save operators and service companies a lot of money. Software was the path to do that.”
Houston Ventures currently has a $35 million fund and a portfolio of four software companies that use software and analytics to, for example, create healthcare networks for geographically dispersed populations such as on offshore oil rigs (Houston-based NuPhysicia) and track via satellite physical assets such as oil field equipment (GeoForce, based in the Dallas area).
The energy sector is still hemorrhaging jobs as it grapples with low oil prices, and Davis says that pinch is making energy executives warm up to supporting innovation. “When drilling activity slows down, people have a lot more time to consider something they haven’t before,” he says. “The down market is actually a pretty good time for technologies that save money.”
So far, Davis says his portfolio companies are showing 15 percent to 20 percent annual growth of the top line. “Are they growing as much as they might if oil prices were higher? Probably not,” he says. “But that’s still a pretty good clip.”
Some of Houston Venture’s legacy companies have been notable successes, most notably, RigNet, a maker of IT networks for offshore rigs. A “couple million ” initial investment in September 2001 is now a publicly traded company on the Nasdaq market, Davis says.
I was interested to speak to Davis and learn about his experience in investing in energy technology startups, especially after the closing of Surge Ventures, a Houston-based cleantech accelerator, this past spring. Surge, founded by Houstonian Kirk Coburn five years ago, had explained his decision, saying the energy industry “did not buy into our model, idea, team, and/or innovation,” making it impossible to continue operations.
Davis agrees that investing and supporting energy startups is not easy. “They require a lot of hand-holding in the early stages,” Davis says, adding that while his firm only has a handful of companies, Surge had dozens.
Generally speaking, Davis says that he finds it difficult to work with the extremely large multi-national oil companies in terms of bringing on new technology. “I find that the larger independents are generally the fastest to seize upon a new idea,” he says.
Davis says he’s seeing more activity among “big data” startups geared toward oil and gas operations that are using data to solve a particular problem such as production intelligence. Also, there is deal flow around asset management, he added.
“We’re starting to see not just [startups] collecting data on assets but reducing it down to a language that a particular equipment manager can relate to,” he says.