The Climate tech IPO window may finally be opening

Climate technology startups are expensive, timelines are long, and the technology is often considered “first of its kind.” In addition, the main value proposition is to deal with environmental pollution – it is external, that is, the best, the lowest price is the market. Those are not qualities stock builders often enjoy.

And yet, public markets seem to be warming up to climate technology startups — or at least some of them.

This week, the X-energy nuclear startup went public, raising $ 1 billion in cheap money that seems to have brought wind to its investors, including Amazon. Retail investors apparently can’t get enough, with the stock up 25% in its first hour of trading. Also this week, geothermal startup Fervo said it has filed its first public application. The size of the Fervo IPO has not been disclosed, but private investors have valued the company at around $3 billion, according to PitchBook.

The move to go public is consistent with what investors told TechCrunch late last year. After years of heated attitudes toward climate technology companies, they expected the public markets to start embracing energy-related startups. Almost every investor who weighed in on the question said that the startups with the best chances of going public are experts in nuclear fission or advanced geothermal. Fervo, in particular, was mentioned several times.

Thank you data centers for that. The AI ​​craze has taken the trend of increasing demand for electricity and made it attractive and salable. Companies that were already betting on the rise of fortune entered a trending story that coincided with their technological maturity. Fortune certainly favors the prepared.

IPOs are also sure to please investors, allowing them to return money to their LPs. The recent dearth of IPOs has kept the climate tech funding sector on the back burner, at a time when many funds would like to start issuing.

But it’s not just about spending money.

Fervo and X-energy have followed a traditional path to public markets, suggesting there is confidence that a broad base of investors wants to participate. If it was about freeing up investors’ money, startups could go the SPAC route. (Several have four.) But these two companies took a long way.

But for all that success, a broad swath of climate technology will likely be left out of the IPO wave.

Companies that are not caught up in energy markets will have to find other ways to continue – and without access to the deep pockets that the public market provides. The split suggests that the world of climate technology is starting to resemble K’s, a trend that Mark Cupta, managing director at Prelude Ventures, suggested when I spoke with him about a week ago.

Companies stuck on the poor side of the IPO window still have private investors to lean on. But even there, a K-shaped trajectory is beginning to emerge.

Venture capital and growth capital raised nearly $6.5 billion last year, according to Sightline Climate. That’s the same as in 2021, but because there are more funds today, each fund is now smaller. For founders, that can be bad news as funds have little recourse. On the other hand, more competition can drive better fundraising results.

At the same time, the big funds keep getting bigger. Infrastructure dominated climate technology fundraising last year, with 42 funds raising 75% of all dollars in the sector, according to Sightline Climate. That success will feed into the first side if it is a company with mature technology that is ready to build big.

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