Climate tech startups face significant capital requirements, lengthy timelines, and often feature innovative technologies. A primary appeal lies in addressing pollution, an externality poorly valued by the market. These factors traditionally make them less attractive to stock pickers. Nevertheless, public markets are beginning to show interest in some climate tech startups.
This week, X-energy, a nuclear startup, went public, raising $1 billion in an upgraded share offering, benefiting investors such as Amazon. Retail investors eagerly participated, with the stock rising 25% in its first trading hour. Additionally, geothermal startup Fervo has filed for an IPO, although the offering size remains undisclosed, with private investors valuing the company at approximately $3 billion.
These public moves align with investor expectations shared with TechCrunch last year, projecting a rise in energy-related startups entering public markets. Investors indicated that companies specializing in nuclear fission or enhanced geothermal technology had the best prospects, with Fervo mentioned frequently.
Data centers have played a role in this trend, as the AI boom increased electricity demand, making it appealing and profitable. Companies already investing in this trend benefited, aligning maturity with market narratives. These IPOs also benefit investors by allowing them to return capital to their Limited Partners (LPs). The recent lack of IPOs left some climate tech funding stagnant, and many funds are looking to cash out.
However, it’s not solely about cashing out. Fervo and X-energy followed traditional public market routes, indicating confidence in attracting a broad investor base. If the goal was only to free up capital, they could have chosen the SPAC route, as others have. Instead, these companies opted for the longer path.
Despite these successes, many climate tech sectors might miss the IPO opportunity. Companies not linked to energy markets must explore alternative avenues, lacking the substantial financial access of public markets. This division indicates a K-shaped trend in climate tech, as noted by Mark Cupta, managing director at Prelude Ventures.
Companies on the less favorable side of the IPO spectrum still have private investors to support them. However, a K-shaped pattern is also forming here. Venture capital and growth funds raised about $6.5 billion last year, consistent with 2021, but more funds led to smaller sizes. This could challenge founders, though increased competition might improve fundraising.
Simultaneously, large funds continue to expand. Infrastructure dominated climate tech fundraising last year, with 42 funds securing 75% of all sector dollars. This success could benefit startups with mature technologies ready for large-scale development.
Sightline Climate reported many new infrastructure funds focusing on renewables, grid technologies, and energy storage, suggesting the K-shape trend is persistent.
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