The climate tech IPO window could finally be opening

Climate technology startups are capital-intensive, the timelines are long, and the technology is often considered “the first of its kind.” What’s more, a key value proposition is addressing pollution, an externality that is, at best, undervalued by the market. Those aren’t the qualities stock pickers tend to favor.

And yet, public markets appear to be closing in on climate tech startups, or at least some of them.

This week, nuclear startup X-energy went public, raising a billion dollars in a large stock offering that appears to have generated a windfall for its investors, including Amazon. Retail investors apparently can’t get enough, as shares rose 25% in their first hour of trading. Also this week, geothermal startup Fervo said it filed for an initial public offering. The size of Fervo’s IPO has not yet been revealed, but private investors have valued the company at around $3 billion, according to PitchBook.

The decision to go public aligns with what investors told TechCrunch at the end of last year. After years of lukewarm attitudes toward climate technology companies, they hoped public markets would begin to welcome energy-related startups. Almost all of the investors who weighed in on the question said that the startups with the best chances of going public specialize in nuclear fission or enhanced geothermal. Fervo, in particular, was mentioned several times.

Thanks to data centers for that. The AI ​​craze has taken a trend of rising electricity demand and made it attractive and sellable. Companies that were already betting on the rebound were lucky with a trend 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 IPO shortage has kept much of the climate tech funding locked up, at a time when many funds would like to start withdrawing money.

But it’s not just about getting paid.

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

Yet despite all that success, a wide swath of climate technology will likely be left out of the IPO wave.

Companies that are not entangled in energy markets will have to find other ways to move forward, and without access to the deep pockets that the public market provides. The divergence suggests that the world of climate technology is starting to take on a K shape, a trend that Mark Cupta, CEO of Prelude Ventures, suggested when I spoke with him a little over a week ago.

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

Venture and growth capital funds raised about $6.5 billion last year, according to Sightline Climate. It is the same as in 2021, but since there are more funds today, each fund is now smaller. For founders, that could be bad news, as funds have less to fall back on. On the plus side, more competition could lead to better fundraising results.

At the same time, large funds continue to grow. Infrastructure dominated climate tech fundraising last year, with 42 funds raising 75% of all dollars in the sector, according to Sightline Climate. That success will extend to the startup side if it is a company with a mature technology that is ready to grow big.

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