Cracks are starting to appear in the fusion energy financing boom

This happens in every emerging industry. As founders and investors move toward a common goal, money begins to flow in and that shared vision begins to diverge.

Cracks are appearing in the world of fusion power, and I saw it firsthand at The Economist’s Fusion Fest in London last week. That didn’t dampen the overall upbeat mood, which has grown as fusion startups have raised $1.6 billion in funding over the past 12 months. However, people differed on two important questions: So when should a fusion startup go public? And are side hustles a distraction?

Going public was everyone’s top priority. In the past four months, TAE Technologies and General Fusion have announced plans to merge with publicly traded companies. Both companies will receive hundreds of millions of dollars to continue their research and development efforts, and investors, some of whom have held their faith for 20 years, are finally seeing an opportunity to cash out.

Not everyone agrees. Most of the people I spoke to were concerned that these companies were going public too soon and that they were not achieving key milestones that many saw as important in determining the progress of fusion companies.

First, a quick recap: TAE announced its merger with Trump Media & Technology Group in December. Although the deal is not yet complete, the fusion business has already received $200 million of the $300 million in cash it could receive from the deal, providing some stepping stone to continue plans for the power plant. (The rest will reportedly be deposited into bank accounts after filing an S-4 form with the U.S. Securities and Exchange Commission.)

General Fusion announced in January that it would go public through a reverse merger with a special purpose acquisition company. The deal could net the company $335 million in profit and could have a combined enterprise value of $1 billion.

Both companies may have access to cash.

Before the merger announcement, General Fusion was struggling to raise capital and laid off 25% of its employees around this time last year, as CEO Greg Thuney posted an open letter pleading for investment. A $22 million lifeline from investors in August provided a temporary reprieve, but that kind of money won’t last long in the world of fusion, where equipment, experiments and employees aren’t cheap.

TAE’s position was less dire, but it still needed some funding. Before the merger, the company had raised nearly $2 billion, which sounds like a lot, but keep in mind that the company is nearly 30 years old. Additionally, PitchBook said the company was valued at $2 billion before the merger. Investors were breaking even at best.

Neither company has reached scientific break-even, a key milestone that indicates a reactor design has power plant potential. Many observers wonder if they can achieve that goal before other privately held startups do. One executive told me that if he were in that position, he didn’t know how he would be able to devote time to quarterly earnings calls unless the company quickly reached a scientific break-even point.

Some feared that if TAE and General Fusion did not deliver results, the open market would have a negative impact on the fusion industry as a whole.

Well, all is not lost. TAE has already begun selling other products, including power electronics and cancer radiation therapy. That could provide the company with short-term profits to appease shareholders. However, General Fusion has not disclosed any such plans.

And there is another division of opinion. Fusion companies are divided over whether to pursue profits now or wait until the plants are up and running.

Some companies are taking advantage of the opportunity to profit in the process. Not a bad strategy! Fusion is a long game, so why not up your odds? Commonwealth Fusion Systems and Tokamak Energy have both announced that they will be selling magnets. TAE and Shine Technologies both specialize in nuclear medicine.

Other startups worry that side hustles can be a distraction. For example, Inertia Enterprises told me that they are focused on their power plants. This echoes what another investor told me a few months ago. They feared that the fusion startup would fall from the top spot, distracted by profitable but failing businesses.

There was also no consensus on the appropriate time for an initial public offering. I heard some milestone proposals. Some believe startups should first reach a scientific break-even milestone, when fusion reactions produce more energy than is needed to ignite. No startup has achieved that yet. Other possibilities include the facility’s break-even point (if the reactor produces more energy than is needed to operate the entire site) and commercial viability if the reactor produces enough electrons to sell meaningful quantities to the power grid.

The answer to that question may be found sooner or later. Commonwealth Fusion Systems expects to reach scientific breakeven within the next year, leading some to wonder if the company will use that as an opportunity to go public.