Start-ups in the quantum computing realm raised $888.43mn in funding in 2022, promising to deliver unrivaled computing power
Start-ups in the quantum computing realm raised $888.43mn in funding in 2022, promising to deliver unrivaled computing power
Last November, Toronto-based Xanadu Quantum Technologies raised $100mn in a series C led by Canada-based venture capital (VC) firm Georgian, elevating the photonic processor developer into the select club of unicorns with a post-money valuation of $1bn.
A raft of investors, including Alumni Ventures Group, BDC Capital, Bessemer Venture Partners, Capricorn Investment Group, Forward Ventures, Pegasus Tech Ventures, Porsche Automobil Holding, and Tim Draper, participated in the $90mn equity round, with Silicon Valley Bank providing $10mn of venture debt.
Quantum computing is moving from the realm of theory to product. Quantum systems have much higher computational power than supercomputers and can solve real-world problems exponentially faster than classical computers. There are applications in medicine and healthcare, materials, agriculture, batteries, climate change, machine learning, economic forecasting, cybersecurity, and transportation. Deeptech venture capitalists see huge potential.
Xanadu’s quantum computer, as well as a similar system from IonQ, QuEra Computing, and Rigetti are already accessible via Amazon Web Services’ quantum computing research service Braket, giving scientists access to machines that can complete complex calculations.
Building the eco-system
Although the technology will take at least a decade to fully develop and harness the full potential of quantum computing, venture capitalists have already bought into companies developing these capabilities. Preqin’s Company Intelligence dataset shows that deep physics and quantum start-ups attracted a record $1.3bn in VC funding in 2021, with $888.43mn invested last year, a robust total given the slowdown across the VC market as a whole.
Well-known VC firms, such as Cambridge-based Amadeus Capital Partners, New York-based Bessemer Venture Partners, New Hampshire-based Alumni Ventures Group, and Paris-based Quantonation – the first VC firm dedicated to deep physics and quantum technologies – have poured cash into developing prototypes. After closing its first fund with $50mn in 2021, London-based 2xN is targeting $120mn for its second fund, which will deploy capital to quantum computing start-ups.
Consultancy McKinsey forecast that quantum computing has the potential to create $80bn revenue, excluding use cases, for businesses across industries. VC firms hope start-ups will develop real applications soon, but a lot more capital will need to be injected into the development of fully functioning hardware and software. But as soon as the technology advances, revenue streams might come from channels such as quantum-components supply chain, algorithm and software development, teaching and consulting, and quantum computer maintenance services. Some start-ups already monetize their quantum-computing vision by working with large enterprises to figure out how to translate use cases into ‘quantum speak’, while research institute Fraunhofer educates workforces about the technology.
Potential exit strategies VC firms might explore
Venture capitalists may be willing to invest in the nascent technology, but they might not want to wait for decades for quantum technologies to fully develop and exit their start-up investments. The first exits occurred in 2021, with IonQ becoming the first pure-play quantum computing company to go public, launching on the New York Stock Exchange (NYSE) through a SPAC merger at a $2bn market capitalization, thus setting the valuation benchmark for the new industry. Rigetti followed suit later the same year and last year D-Wave Systems Inc. went public on the NYSE in a $340mn SPAC deal.
Listing promising companies in an IPO might be an option, as shares could be sold at an attractive price, particularly if tech companies are in demand once the downturn ends. Some early investors might sell their stake in start-ups to existing or new investors via the secondary market, while corporations developing quantum computers and big players, such as Google and IBM, might consider buying start-ups that supply software or quantum processors that would complement their own technology.
The quantum race is on
The technology may be in its infancy, but VC firms will keep investing in start-ups racing to develop quantum computers with unmatched power. Scientists will continue to research the emergent field to try to find additional tasks for quantum computers to perform, which could lead to major advancements and a new technological revolution.