The climate technology IPO window may finally be opening

Climate tech startups are capital-intensive, 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, poorly priced by the market. These are not the qualities stock pickers tend to prefer.

And yet, it appears that public markets are warming to climate tech startups — or at least some of them.

This week, nuclear startup X-energy went public, raising $1 billion in an enlarged stock offering that appears to have benefited its investors, including Amazon. Retail investors can’t seem to get enough, and the stock jumped 25% in the first hour of trading. Also this week, geothermal startup Fervo said it was filing for an initial public offering. The size of the Fervo 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 consistent with what investors told TechCrunch late last year. After years of lukewarm attitudes toward climate technology companies, they expected public markets to begin welcoming energy-related startups. Almost all investors who weighed in on the issue said the startups with the best chances of going public specialize in either nuclear fission or enhanced geothermal energy. Fervo was specifically mentioned several times.

Thank you data centers for that. The AI ​​craze has taken a trend of increasing demand for electricity and made it sexy and marketable. Companies that already bet on the upswing found success with a trend narrative that coincided with their technological maturity. Fortune certainly favors the prepared.

The IPOs are also sure to please investors, letting them return capital to their LPs. The recent lack of IPOs has kept some climate technology funding locked up at a time when many funds want to start paying out.

But it’s not just about paying out.

Fervo and X-energy have followed the traditional path to public markets, suggesting there is confidence that a broad base of investors want to participate. If it was just about freeing up investor capital, startups might have gone the SPAC route. (Several have.) But these two companies took it further.

Yet, for all that success, a large number of climate technologies are likely to be left out of the IPO wave.

Companies that are not entangled in the energy markets will have to find other ways to push – and without access to the deep pockets that the public market provides. The divergence suggests that the climate technology world is starting to become K-shaped, a trend that Mark Cupta, managing director at Prelude Ventures, suggested when I spoke with him a little over a week ago.

Companies stuck on the downside of the IPO window still have private investors to lean on. But there, too, a K-shaped trajectory begins to appear.

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

At the same time, the large funds are getting bigger and 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 rub off on the startup side if it is a company with a mature technology that is 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 will not disappear for the time being.