Russ: Hi there, I’m Russ Capper, and this is The BusinessMakers Show. My guest today: Mike Witte, Co-founder and COO of Austin based RigUp. We enter the discussion where I ask Mike to tell us about RigUp.
Mike: RigUp is a marketplace for oil and gas equipment and services. So, we connect buyers, which are E&P companies, with sellers, which are service companies, and promoting cost efficient and safe operations.
Russ: Ok, and obviously web based.
Mike: And obviously web based.
Russ: Ok. So and how old is the company?
Mike: We started the company about 2 years ago with a small seed investment. Our 300 million dollar seed investment by a group out of San Francisco called Founders Fund.
Russ: San Francisco fund investing in oil and gas?
Mike: Exactly. And the 3 co-founders; myself, Xuan Yong, and Sandeep Jain were actually in New York at the time. So it was a group out of New York getting backed by a group in San Francisco to go do work in oil and gas. We didn’t stay in New York long. We are now back in Texas, and based in Austin.
Russ: Ok, and Founders Fund has a name person heading that thing up to right?
Mike: Yeah, very interesting group. One of the prominent names, I guess, is Mr. Peter Thiel, who’s a very prominent tech investor, to get involved with us.
Russ: Ok, so there’s been quite a few people that have sort of tried to do something like this, try to be a matchmaker between exploration, and production, and service, so what sets you guys apart?
Mike: Absolutely. I think for one, it’s our people and it’s our employees, and the knowledge we have. We have a great group of petroleum engineers combined with a phenomenal group of software engineers. It’s a group that really understands the problems. We work closely with our clients, and kind of letting them help, you know, discover solutions alongside of us, and because of that, we’ve come up with workflow tools that are very applicable just for the oil and gas industry. I think that an example that I always give is that in oil and gas, you’re not buying a blue t-shirt, right? It’s a little more complicated than that. And so, for a marketplace to work, and for it to be simple and easy, you have to take, you know, very complex equipment, very complex pricing, and you’ve got to use technology to simplify it into an easy buying decision.
Russ: That’s what I was thinking when I, you know, first got my head around this thing. You know, what an E&P company might say that this is what we want done, you know, there could be a service company out here who has a brand new technology that nobody knows about, that doesn’t fit the criteria; how do you do that?
Mike: We like to call it a collaborative buy network. That’s what we hope to offer. And in an industry that’s thrived on a relationship business, we want to keep that alive, and so, we currently have just north of 10,000 service companies on the platform (Russ: My goodness.). Right, and so you’ve got an environment where E&P companies, the demand side can come up with what they need, what they think they need, and service companies can connect to this bid, or to this work, and not only bid on exactly what the E&P company needs, but offer new technology, offer new solutions, and it’s a great way for companies to be able to highlight these things and not only fulfill the immediate needs of the E&P company, but also bring new things to the table. Especially if, right now I don’t know if anybody has noticed, but oil is slightly lower than it has been.
Russ: Well, that’s what I was going to ask you. You started 2 years ago and really got into the business, you were just waiting for the price to really get down there, right?
Mike: Yeah, I always tell everybody we saw it coming, like everybody else. Yeah, no, it’s certainly an interesting time for technology, and you’ve got, in today’s environment, you’ve got people that are looking for, or really, really searching for ways to be more efficient to really kind of get every dollar they can out of their operations. And we believe it can only be done with technology. It can only be done with this network that we create.
Russ: This explains why you got on my radar, because it was our interview with Mark Mills, the writer of “Shale 2.0” that was talking about technology is going to make the difference, it’s going to bring us back to be very competitive, all this shale production. Some people are skeptical. I can take us as far as he said. He gave RigUp as an example. So, he’s saying and you’re saying that just being in the middle of these two key players, you can bring the cost of production down.
Mike: Yes. In fact, I think on RigUp, you can go, there are multiple economic opportunities out there. Really, you can drill an economic well using technology right now. I believe that pretty adamantly.
Russ: Ok, so say I’m a service company and I’m listening to this right now and I’m thinking, man, I want to get in on that. How much does it cost? So, like, is there a startup fee for me, and a success fee, and all that kind of stuff?
Mike: Right. So, the core platform is free. And, I know, we get that look a lot; what’s the catch? The core platform is free, and I’ll tell you why. That’s because you’ve got people in the industry that have been doing business with each other for a long time, and we do make that more efficient, but we’re not here to take an existing relationship and put a fee on top, right? So, for people that are used to working together, that have been working together, that continues to be free.
Russ: Ok, but how do you make money?
Mike: So, we feel like we can make money in opportunities where we can bring new work to the table. So, we can, either that’s a new work opportunity for a service company, or a work opportunity that an E&P company wasn’t able to do in today’s, maybe commodity environment, but that they can now do with technology. So, a great example of that is, if you’re a service company, we provide a vehicle for you to be able to go to your E&P clients and say, you know, we’ll take payment and production, or we’ll take, we’ll do the work and you can pay us out of the production for the well. Well, you probably don’t want to do that. You probably don’t actually want to take the production. So, we’ll sit in the middle and we will pay you immediately for the work that you’ve done, and we will actually get repaid by the production. It’s very creative financing solutions in the marketplace.
So, it’s a marketplace, but we can take payment and production, and we can also maybe extend payment terms. So, again, as a service company, you can also go to your E&P clients and say, you know, I’ll do this work but you don’t have to pay me for 6 months. When you have creative solutions like that in place, you can actually create an environment where E&P companies can stay within cash flow, they can drill wells, they can get production online, and they can really keep drilling even at 40 dollar oil.
Russ: Very creative.
Mike: We want jobs to be done, we want work to be done, and we want to make that happen. And so, this is one way we can do that. Let service companies focus on being safe and efficient; we’ll pay them immediately, and we’ll sit there and use our technology and our network to, essentially, take the risk on either the production or the finance. Another huge piece is an insurance component. I know, finance and insurance, not where I thought I was going when I started this (Russ: Right, right. Thought it was a data service). But one thing a lot of them don’t have is the insurance capacity to be able to go do jobs for some of our larger clients. It can be expensive. So, we’ve set up a vehicle to allow them to work and provide them, essentially, kind of that insurance backing that allows them to be compliant to go do work for a larger client. We do that at scale. It’s cheaper for everybody in the industry.
The other thing we bring to the table is, of our 10,000 companies, you know I always say 40% of these companies might not even have a website. They can think of RigUp as a website. The way they set up (Russ: Like their website.), yeah, they set up their profile, they set up their, they add their logos, they talk about themselves, they can put marketing material, they post the products and services and which locations they offer them out of. And yes, we help them with that as well.
Russ: 10,000 service companies, I mean, how did you do that?
Mike: No, it’s interesting. So, all these E&P companies have an approved vendors list. So they have all of these lists of their contractors, so our early pilot partners, I went to them and they would offer up their approved vendors list and say, “I love what you’re building, just make sure these guys are on the platform.” And so, we took all of this information that people gave us and then it was the problem of being able to sign that many companies—
Russ: So you had to officially get them to say yeah.
Mike: Yeah, and so we hired some interns from the University of Texas Petroleum Engineering school, and a lot of those guys are actually still working for us today, and so we took this database, and we got on the phones, and we beat the pavement, and we asked these companies to sign up. And sure enough, after you do it enough times, the word starts getting out.
Russ: So, you also kind of popped up on my radar again because you’ve raised another successful round, in fact, there might have been several, and I guess people are looking at you as really providing what you say you’re going to provide, that lowers the cost of production. Is that accurate?
Mike: Yes, I think it is. We are fortunate in that we raised another 15 million dollars in just a couple months ago, are able to bring in some great investors, some of those based here in Houston; GE Ventures is an example of somebody that came in with this round, and so, yeah, really excited about some of the new oil and gas names we have behind us.
Russ: Ok, so since you’re kind of financing some of these transactions I guess you’re taking some risks there too, right?
Mike: Yeah, absolutely. We are set up; we have partners on the financing front. Our goal is to, again, allow work to be done, so because of that, we want to, we are constantly working on partnerships to always have the right cost of capital for the transaction that’s trying to be done.
Russ: Ok, real interesting. So, are there services outside of this matchmaking thing, matchmaking and financing that you do?
Mike: When you look at kind of the full buying experience, if you will, the marketplace is where we started, because it didn’t exist. There’s also two other pieces. There’s contractor compliance, there’s a ton of work that has to be done with managing master service agreements, certificates of insurance, a numerous amount of HSE training programs and documentation, and again, we provide an exchange for that to be done relatively seamless. On top of that, all of the works been done. There’s also the invoicing component. One great inefficiency in oil and gas is how long it takes for the service companies to get paid. We’ve seen a bid, so we have pricing on file. We’ve checked out that this contractor’s compliant to do work on this location, so when you submit an invoice, it just kind of all matches up and is a very easy way to pay.
You are getting people paid quicker; you are taking, again, one of the highest costs of capital of any industry, and really in the world, and you’re trying to make it more competitive. And that really matters right now.
Russ: So, I gotta ask, was that the vision, the plan in the very beginning?
Mike: No, not at all. So, but the vision was always the same. We wanted to create an efficient marketplace, and one struggle with oil and gas is these master service agreements. When we might have 10,000 service companies on the platform, but if you go to an E&P company, I’m only approved to do work with maybe a couple hundred of those. So, we were trying to create this marketplace environment, but we were really kind of hamstrung by this approved vendors list. So, what was the most radical way we could think to get around that using technology? And so we’ve created, we said, well you can sign a master service agreement with us, and then we’ll go sign it with all of these service companies. So, what does this create for an E&P company? Well, they sign one agreement, and now, you know, they can go work with all these service companies.
For a service company, they can sign one agreement, now they’re approved to work with our E&P clients, and so you’ve really turned the marketplace green; you’ve opened it up to everybody.
Russ: That was a huge hurdle that you weren’t anticipating.
Mike: Was not anticipating that on day one, however, that’s also turned into a huge opportunity for us. The payment out of production, the financing, the insurance, all of that is made possible by us using its technology network and these contracts to connect everybody.
Russ: Ok, and so you don’t actually have to own assets, which normally you do in a master service agreement.
Mike: No, this sounds kind of wild, but you can call Uber the world’s largest cab company without actually owning any taxis, and so, we’re just trying to create a great service buying experience without actually owning any of the assets.
Russ: So, somebody’s watching saying I’m interested, the website is..?
Russ: Wow, cool. Well Mike, I really appreciate you sharing this cool story with us today, and good luck.
Mike: Russ, thank you for having me.
Russ: You bet.
brought to you by