Cracks are starting to form on fusion energy’s funding boom

It happens in every emerging industry: Founders and investors move toward a common goal, until money starts coming in and the shared vision starts to fall apart.

Cracks are emerging in the world of fusion power, which I witnessed firsthand at The Economist’s Fusion Fest in London last week. This didn’t dampen the overall bullish mood, sparked by the $1.6 billion fundraise by fusion startups over the past 12 months. But opinions differed on two key questions: When should a fusion startup go public? And are side businesses a distraction?

Going public was uppermost in everyone’s mind. Over the past four months, TAE Technologies and General Fusion have announced plans to merge with publicly traded companies. Both are likely to receive millions of dollars to keep their R&D efforts alive, and investors, some of whom have kept faith for 20 years, see an opportunity to finally cash out.

Not everyone agrees. Most of the people I spoke to were concerned that these companies were going public too early and had not achieved the key milestones that many consider important in assessing the progress of a fusion company.

First, a recap: TAE announced its merger with Trump Media & Technology Group in December. Although the deal is not yet closed, the fusion side of the business has already received $200 million of the potential $300 million from the deal, giving it some runway to continue planning its power plant. (The remaining amount will reportedly be transferred to his bank account after he files an S-4 form with the US Securities and Exchange Commission.)

General Fusion said in January it would go public through a reverse merger with a special purpose acquisition company. The deal could generate net proceeds of $335 million for the company and value the combined entity at $1 billion.

Both companies could use the cash.

Before the merger was announced, General Fusion was struggling to raise money, and around this time last year it laid off 25% of its employees after CEO Greg Twinney posted a public letter asking for investment. It got a brief reprieve in August when investors gave it a $22 million lifeline, but that kind of money doesn’t last long in the fusion world, where equipment, experiments and staff don’t come cheap.

Tae’s situation was not that serious, but he still needed some money. Before the merger, the company raised about $2 billion, which seems like a lot, but keep in mind that the company is almost 30 years old. What’s more, according to PitchBook, it was valued at $2 billion before the merger. Investors were making losses even at the best of times.

Neither company has achieved scientific balance, an important milestone that shows the reactor design has power plant potential. Many observers are skeptical that they will hit that goal before other privately held startups. One executive told me, if they were in such shoes, they wouldn’t be sure how they would fill time on quarterly earnings calls if companies didn’t hit scientific breakeven soon.

If TAE or General Fusion does not deliver, many fear the public markets will hit the entire fusion industry.

Now, everything cannot be destroyed. TAE has already begun marketing other products, including power electronics and radiation therapy for cancer. This may generate some revenue for the company in the near term to satisfy shareholders. However, General Fusion has not revealed any such plans.

And therein lies another divide: Fusion companies remain divided over whether they should pursue revenue now or wait until they have a working power plant.

Some companies are taking advantage of the opportunity to make money. Not a bad strategy! Fusion is a long game, so why not improve your chances? Commonwealth Fusion Systems and Tokamak Energy have both said they will sell the magnets. TAE and Shine Technologies are both in nuclear medicine.

Other startups are worried that side hustles could be a distraction. For example, Inertia Enterprises told me they are laser-focused on their power plant. This matches what another investor told me months ago: – They were worried that fusion startups could get distracted from profitable, but tangible businesses and fall off the radar.

There was also no consensus on the right time to go public. I heard some proposed milestones. Some believe that the startup must first reach the scientific breakeven milestone, in which a fusion reaction produces more energy than is needed to ignite. No startup has achieved this yet. Other possibilities are facility breakeven – when the reactor creates more energy than is needed to operate the entire site – and commercial feasibility – when a reactor creates enough electrons to sell meaningful quantities to the grid.

Perhaps we will get the answer to that question sooner rather than later. Commonwealth Fusion Systems expects to reach scientific breakeven sometime next year, and some think the company could use this as an opportunity to go public.