The climate tech IPO window could finally open

Climate tech startups are capital intensive, timelines are long, and the technology is often considered “first of its kind.” Moreover, a key value proposition is addressing pollution — an externality that is, at best, poorly priced by the market. These are not the qualities that stock buyers tend to prefer.

And yet, public markets seem to be catching on with climate tech startups — or at least some of them.

Nuclear startup X-energy went public this week, raising $1 billion in an upgraded stock offering that appears to have delivered a windfall for its investors, including Amazon. Retail investors obviously can’t get enough, with the stock up 25% in the first hour of trading. Also this week, geothermal startup Fervo said so 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 around $3 billion, according to PitchBook.

The move to go public is in line with what investors told TechCrunch late last year. After years of being lukewarm toward climate tech companies, they’ve been waiting for the public markets to start welcoming energy-related startups. Almost every investor asked the question said the startups with the best chance of going public specialize in either nuclear fission or enhanced geothermal. Fervo, in particular, was mentioned several times.

Thank data centers for that. The AI ​​craze has taken a trend of increasing demand for electricity and made it sexy and marketable. Companies that were already betting on recovery lucked into a trending narrative that coincided with their technological maturity. Fortune certainly favors the prepared.

IPOs are also sure to please investors, allowing them to return capital to their LPs. The recent lack of IPOs has kept a chunk of climate tech funding locked up at a time when many funds would like to start cashing in.

But it’s not just about cashing out.

Fervo and X-energy have taken the traditional route to public markets, suggesting there is confidence that a broad investor base wants to participate. If it was just about freeing up investor capital, startups could have gone the SPAC route. (Several have.) But these two companies took the longest route.

However, for 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 to push — without access to the deep pockets that the public market provides. The divergence suggests that the world of climate technology is beginning to take on a K shape.

Companies stuck on the poorer side of the IPO window still have private investors to lean on. But even there a K-shaped trajectory is starting to appear.

Venture capital and growth funds raised about $6.5 billion last year, according to Sightline Climate. This is the same as 2021, but because there are more funds today, each fund is now smaller. For founders, this could be bad news as there is less capital to draw from. On the other hand, more competition could lead to better fundraising results.

At the same time, large funds are constantly increasing. Infrastructure dominated climate tech fundraising last year, with 42 funds raising 75% of all dollars in the industry, according to Sightline Climate. That success will spill over to the startup side as well, if it’s a company with mature technology that’s ready to build big.

Sightline said many new infrastructure funds specialize in renewable energy, grid technologies and energy storage. In other words, the K-shape isn’t going away anytime soon.