While a fully functioning quantum computer may still be years away, investors are showing a growing interest in the nascent tech area that promises to one day allow calculations at tremendous speed and power AI model building.
This week, Quantinuum, a company that formed in 2021 through a merger of Honeywell’s quantum unit and Cambridge Quantum Computing, raised $300 million at a valuation of $5.3 billion in a deal led by JP Morgan Chase.
A record number of companies developing hardware and software for quantum computers raised funding last year despite a decline in total deal value, according to PitchBook data. Investor activity in the area is notable at a time when most prominent tech sectors registered a drop in deal count.
“I think people who have been sitting on the sidelines are realizing that this technology is starting to mature,” said Niels Nielsen, co-founder and partner at a quantum computing-focused venture firm 2xN, which was an early backer of Quantinuum. “There’s a growing momentum, but it’s still a small market.”
Quantum computers have the potential to perform calculations much faster than classical computers. This could result in facilitating tremendous breakthroughs in anything that requires complex calculations in fields including biotech, chemistry and logistics.
For now, the most significant investors in quantum computers are governments, sovereign wealth funds and corporations rather than VCs, according to Nielsen.
Although you can find traditional VCs on the cap tables of some quantum computing startups, they’ve been largely staying away from this sector since the venture downturn.
Rigetti Computing and D-Wave, two of three quantum computing companies that went public via a SPAC in 2021, have lost more than 90% of their value and are currently trading below $1 per share. However, the stock price of IonQ, the third quantum SPAC of that era, has more than doubled since its low about a year ago, and the company currently has a market capitalization north of $2 billion. Nielsen believes that investors may be bullish on the stock because IonQ’s technology is similar to Quantinuum’s, which is showing more promise.
While VCs may have not yet realized strong outcomes from their investments in quantum companies, the industry is making steady progress.
Several VC-backed companies, including QuEra Computing and France-based Alice & Bob, are starting to show that their computers can detect and, in some cases, correct errors, a significant obstacle for quantum machine development because the available machines are too unstable and error-prone to solve any practical problems, said Joe Fitzsimons, founder and CEO of Horizon Quantum Computing, a developer of software for quantum computers.
Fitzsimons’ company raised an $18 million Series A last March at a valuation of $112 million from investors including Expeditions Fund and Peak XV, formerly Sequoia India, according to PitchBook data.
“The other thing that quantum computing has going for it at the moment is that two or three years ago, it was relatively easy to convince people that there’s enough computing in the world,” Fitzsimons said.
That, of course, changed amid the shortage of GPUs for training AI models.
Once quantum computers are available, they’ll be able to train large language models with exponentially less effort than a conventional computer, Fitzsimons explained.
Nielsen also believes that the recent boom in AI is a strong tailwind for quantum computing.
“Eventually, quantum and AI will merge,” he said, though he added that may not happen for another five or 10 years.
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