The window for a climate tech IPO may finally be open

Climate technology startups are capital-intensive, have long timelines, and are often considered “first of their kind” technology. Moreover, the main value proposition is to address pollution – an externality that the market does not price in, at best. These are not qualities that stock collectors tend to prefer.

However, the public markets appear to be moving toward climate tech startups — or at least some of them.

This week, nuclear energy startup X-energy went public, raising $1 billion in a massive stock offering that appears to have delivered a windfall for its investors, including Amazon. It seems retail investors can’t get enough, as the stock rose 25% in the first hour of trading. Also this week, geothermal startup Fervo said it had filed for an initial public offering. The size of Fervo’s IPO has not yet been disclosed, but private investors have valued the company at about $3 billion, according to PitchBook.

The move to go public is consistent with what investors told TechCrunch at the end of last year. After years of lukewarm attitudes toward climate technology companies, they expect public markets to begin welcoming energy-related startups. Almost every investor who participated in this question said that the startups with the best chances of going public specialize in either nuclear fission or enhanced geothermal energy. Vervo, specifically, has been mentioned several times.

Thank data centers for that. The AI ​​craze has taken the trend of making electricity more in demand and making it exciting and salable. Companies that were already betting on the upside got lucky in the blockbuster narrative that coincided with their technological maturity. Luck certainly favors the prepared.

IPOs are also sure to please investors, allowing them to return capital to their limited companies. A recent dearth of IPOs has kept much of climate technology funding locked up, at a time when many funds want to start withdrawing money.

But it’s not just about drainage.

Fervo and X-energy have taken the traditional route to the public markets, indicating confidence that a broad investor base is willing to participate. If it were just a matter of freeing up investor capital, startups could have followed the SPAC route. (Several have done so.) But these two companies took the longer route.

However, despite all this success, a wide range of climate technology will likely be left out of the IPO wave.

Companies not involved in energy markets will have to find other ways forward — and without access to the deep financial resources provided by the public market. This divergence suggests that the world of climate technology is beginning to take a K-shape, a trend that Mark Kupta, managing director at Prelude Ventures, suggested when I spoke to him just over a week ago.

Companies stuck on the poorer side of the IPO window still have private investors to rely on. But there too a K-shaped path is beginning to emerge.

Venture capital and growth funds raised about $6.5 billion last year, according to Siteline Climate. This is the same as it was in 2021, but because there is more money today, each fund is now smaller. For founders, this can be bad news since they have little money to fall back on. On the positive side, more competition can lead to better fundraising results.

Meanwhile, large funds continue to grow. Infrastructure dominated climate technology fundraising last year, with 42 funds raising 75% of all dollars in the sector, according to Sightline Climate. This success will extend to startups if a company has mature technology and is ready to build large projects.

Many of the new infrastructure funds specialize in renewables, grid technologies and energy storage, Siteline said. In other words, the K-shape is not going away any time soon.