Gradient Geothermal, a Denver-based firm that turns waste heat into geothermal energy, is close to closing a USD 3m seed round and is expected to launch a USD 25m Series A next year, according to two sources familiar with the situation.

The company, which turns the waste heat in the water and liquid naturally produced from oil wells into geothermal energy, is backed by XMC Strategies, a private equity firm focused on energy transformation. Gradient units work at existing oil and gas wells, helping them create clean energy, optimize their energy use and reduce their carbon footprint, according to the firm’s website.

The valuation of the seed round post-money is roughly USD 18m, one of the sources familiar added.

Benjamin Burke, the CEO of Gradient, told Infralogic he could not disclose details of the firm’s fundraising plans, but said the company is “really excited about both the growth that we’ve had in our operations” and “very excited about the future of modular distributed geothermal.”

Burke was one of the co-founders of Transitional Energy, Gradient’s legacy company which launched in February 2020. The firm raised a nearly USD 900,000 angel round in 2021.

XMC then made two investments in Transitional before agreeing to a merger deal with XMC in late 2023. The terms of the deal were not announced.

Gradient has one 75 kW unit deployed already through a partnership with Chord Energy in the Williston Basin in North Dakota. Another four units totaling 375 kW are ready for deployment later this fall, Burke said. The firm expects to accelerate its growth by installing at least 25 units next year and at least 50 or 60, perhaps more, in 2026.

Investing in the energy bridge
For XMC, also called X Machina Capital Strategies, Gradient fits into the firm’s strategy of investments that fall between traditional energy and conventional renewables. The firm was launched four years ago, when its founders recognized what they saw as a void in the energy investment universe.

“Investors really had kind of a bifurcated opportunity, either in traditional energy or in renewables, but not as much in what is the bridge going from one to another,” said Catherine Flax, XMC’s president of private markets. “So, we started to set up XMC focused on both the energy of today and the energy of tomorrow, and importantly, what are the things that are necessary to go from today to tomorrow.”

XMC focuses on opportunities for investing in and transforming end-of-life oil and gas assets. In addition to Gradient, XMC’s portfolio includes Zefiro Methane, which generated carbon credits by plugging orphaned, abandoned or end-of-life oil wells and cleaning up toxic sites. Zefiro completed its Initial Public Offering (IPO) in April 2024.

XMC is primarily backed by family offices and high net worth individuals, Flax said, but the firm is also speaking to institutional investors.

XMC is now raising its second fund, according to public documents. The vehicle, X Machina Capital Strategies Fund II LP, is looking to raise USD 300m, SEC filings show. Flax declined to comment on the fundraise, citing SEC regulations.