Climate change technology startups are capital intensive, have long timelines, and their technologies are often considered “first of their kind.” Moreover, a key value proposition is addressing pollution, an externality that is poorly priced in the market at best. These are not qualities that stock pickers tend to like.
Still, public markets appear to be warming to climate technology startups, or at least some of them.
This week, nuclear startup X-energy went public, raising $1 billion in an enhanced initial public offering that appears to have provided a windfall for the company's investors, including Amazon. Retail investors apparently weren't having enough, with the stock soaring 25% in the first hour of trading. Also this week, geothermal startup Ferbo announced it had filed for an initial public offering. The size of Fervo's IPO has not yet been disclosed, but private investors value the company at about $3 billion, according to Pitchbook.
The move to go public is in line with what investors told TechCrunch late last year. After years of indifference toward climate technology companies, they had hoped that public markets would begin to welcome energy startups. Almost all investors who participated in this question said that the startups most likely to go public are focused on either nuclear fission or enhanced geothermal. Ferbo in particular was mentioned several times.
Thank you data center. The AI trend is trending towards higher demand for electricity, making it attractive and salable. Companies that were already betting on an economic upturn were lucky to buy into a trend narrative that coincided with their own technological maturity. Luck certainly favors those who are prepared.
IPOs are also sure to please investors and return capital to LPs. The recent lack of IPOs has locked up a lot of money in climate change technology at a time when many funds are looking to start raising capital.
But it's not just about converting money into cash.
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Furbo and X Energy are taking the traditional route to public markets, signaling confidence that a broad base of investors wants to participate. If the sole purpose was to free up investor capital, the startup could have gone the SPAC route. (Some companies did.) But these two companies went much further.
But despite all this success, a wide range of climate change technologies will likely be left out of the IPO wave.
Companies not enmeshed in energy markets will need to find other ways to move forward without accessing the wealth of capital that public markets offer. This divergence suggests that the world of climate technology is beginning to move in a K-shape.
Companies that are at a disadvantage during the IPO period still have individual investors to rely on. However, we are beginning to see a K-shaped trajectory there as well.
Venture capital and growth funds raised about $6.5 billion last year, according to Sightline Climate. This is the same in 2021, but now that there are more funds, the size of each fund has become smaller. This could be bad news for founders, as they'll have less money from their capital. On the positive side, more competition could lead to better funding results.
At the same time, large-scale funding continues to grow. According to Sightline Climate, last year's climate technology funding was dominated by infrastructure, with 42 funds raising 75% of all funding in this area. If a company has mature technology and is ready to build a big company, its success will spill over to the startup side.
Many new infrastructure funds are focused on renewable energy, grid technology and energy storage, according to Sightline. In other words, the K-shape is not going away anytime soon.
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