Quantum technologies promise to solve problems that elude conventional computers, and this powerful prospect has fueled a vibrant ecosystem and growing capital investment in quantum startups. Manjari Chandran-Ramesh, a partner at Amadeus Capital Partners who invests in the fields of machine learning, artificial intelligence, robotics, and quantum technologies, has been following quantum startups, analyzing peaks and dips in interest and investment, and shared her thoughts on the market’s path with EE Times Europe.
It was founded in 1997 by Anne Glover and Hermann Hauser, and is based in the United Kingdom Amadeus Capital Partners Supporting more than 180 companies and raising more than $1 billion in investment. It has invested in AI companies such as polyAI, Graphcore, XMOS and V7 and has rarely been one of the first VCs in the UK to turn to quantum startups.
Find the killer app
The era of quantum computing began in the 1980s and 1990s with the publication of basic research papers, but it took decades for the experimental side to keep up with the theory. An ecosystem of quantum technology startups, including those who specialize in quantum computing (hardware and software), sensing and communications, has grown from just a handful in 2013 to more than 200 in 2021, according to consultancy McKinsey.
However, it is not yet clear what the quantum killer application is.
Sure, quantum sensing is closer to the market, but it’s been sitting on the fringes rather than the center of attention. “Hardware, software, and networks of quantum computers, given how cluttered they are, are more exciting — but they are more emerging, longer-term, more capital-intensive,” Chandran- Ramesh told EE Times Europe.
Five major approaches to quantum computing—cold atoms, superconductivity, ion traps, photonics, and quantum dots—are being explored around the world. Of the five, Chandran Ramesh said, ion traps and superconducting qubits are at the highest level of technological readiness and have received the most funding as well.
But she said there are key questions that remain to be answered. “Can they [qubits] Scale? Without scaling, can we reach the required number of logical qubits? Logical qubits are necessary for fault tolerance. Unless we achieve fully error-correcting, fault-tolerant quantum computing, a quantum computer will not be able to provide accurate and mathematically accurate results.
“We will see different types of hardware until there is a universal fault-tolerant computer available,” Chandran-Ramesh said.
What is the return?
Even as breakthroughs accelerate, quantum computing startups proliferate, and investment flows in, questions about ROI remain. Are Quantum Technologies Financially Beneficial for Businesses and Investors? What are the revenue forecasts?
According to the Boston Consulting Group, quantum computing could create value from $450 billion to $850 billion in the next 15 to 30 years. Manufacturers of quantum computers could generate between $5 billion and $10 billion in revenue in the next three to five years if the technology expands as quickly as the major vendors have promised.
However, Chandran Ramesh sees the prediction as “a bit optimistic” and “would be surprised” if it came true.
A handful of companies are already generating revenue, including Oxford Quantum Circuits and Eun Q. In fact, the latter reported full-year 2021 revenue for 2021 of $2.1 million and said it expects revenue this year to be between $10.2 million and $10.7 million, or 5 x its 2021 revenue.
Ultimately, cloud-based quantum computing services could become the most valuable part of the ecosystem and generate extraordinary rewards for those who control them. In 2021, IonQ made its quantum computers available via major cloud providers, including Google Cloud, Microsoft Azure, and AWS. “You can access qubits, and that comes at a cost,” Chandran-Ramesh said. Sure, there are revenue opportunities, but it will be in the billions for the sector [within five years]? I’ll take that with a pinch of salt.”
Hardware or software?
The largest single investment deals in quantum devices. However, McKinsey notes that the number of software-focused startups is growing faster than any other sector in the quantum computing value chain.
“A lot of people feel they should invest in software, rather than hardware, because it was easier and faster to get a return on software, but in quantum computing, both are important,” Chandran-Ramesh said. “I don’t think we can have hardware without algorithms, and there’s no point in investing only in software, because until you get the qubits, what are you going to do with software?”
She continued, “Nothing like classic algorithms. It’s not like you can develop hardware and just say, ‘We’ll use existing software, and they’ll all work fine.’ It just doesn’t work that way. This is a case where you can’t choose between the two.”
Mergers and Acquisitions, SPACs, and Technological Sovereignty
The level of M&A activity is a good indication of momentum in an emerging sector. What drives technology mergers and acquisitions? Traditionally, companies that acquire others or merge do so to create synergies and acquire complementary skills for their organization. That was the case With the merger of Pasqal, developer of neutral atom-based quantum technology, and Qu & Co, quantum algorithm and software developer, in January 2022.
Acquisitions also happen for market growth. In 2018, for example, South Korea Telecom acquired half of Swiss cybersecurity startup Quantique for $65 million.
SPACs have also thrived over the past couple of years by providing an alternative avenue for companies that would normally only be able to fully fund their technology development after being acquired by a larger peer. IonQ, Rigetti, and D-Wave, respectively, have been announced via SPACs.
When asked whether spacecraft is here to stay or if it is a short-lived phenomenon, Chandran-Ramesh acknowledged the positive impact on quantum space but added, “I’m not convinced that this is the way forward.”
Can we expect more consolidation in the coming years? “There is no doubt about it,” Chandran-Ramesh replied. However, governments are concerned about technological sovereignty, and the European Union is particularly vigilant when a European startup receives foreign investment. “To avoid that, it would make sense to have a larger growth stage fund just for the quantum here in Europe.”
Is Europe in a quantum race?
“Europe is definitely part of the race,” Chandran-Ramesh said.
The European Union has saved billions of euros for the development of quantum technologies, especially quantum computing. In 2018, Europe showed the first cards in a €1 billion bet, and earlier this year the European Innovation Council committed more than €145 million over the next two or three years to developing next-generation processors, with some of that investment going to Quantum.
The commitment is equally strong at the level of some Member States. Germany alone has allocated €2.2 billion, while France has unveiled a five-year plan of €1.8 billion to fund research in quantum computing, communications, and sensing.
Globally, funding and investment activity for quantum technology startups exceeded $1.4 billion in 2021, more than double what it was in 2020, according to McKinsey’s June 2022 quantum technology observer. Most investments remain in American companies, followed by British, Canadian and European companies.
In Europe, there are only a few private investors in quantum technology, but they have been particularly active over the past few years.
So far, Amadeus Capital Partners has invested in quantum photon science startup Nu Quantum and quantum computing software developer Riverline, both based in Cambridge, UK, as well as a third startup still in stealth mode.
“I am not sure that the largest amount of cash necessarily wins the race,” Chandran-Ramesh said. I wouldn’t say that just because China is pumping so much money, it’s a losing race. Europeans are very good at trying to achieve more with less. You don’t necessarily need several billions to achieve wisdom.”
According to McKinsey, in 2020, the European Union led the field in terms of articles published in quantum-related fields, followed by China and the United States.
Where is the talent?
Talent scarcity is a major concern in quantum computing, but capturing the full potential of this rapidly developing industry will only be possible if the talent shortage is addressed at a global level.
According to McKinsey’s Quantum Technology Monitor, there are currently 176 universities with quantum research programs, but only 29 universities offer master’s degrees in quantum. US universities account for more than a third of all universities with quantum research programs.
However, the European Union has the highest concentration of quantitative talent, followed by the United Kingdom
“Good companies attract good people,” Chandran Ramesh said. “The CEO of Riverlane always tells us, ‘If you run a good company, people will come.’” She noted that the AI chip startup Graphcore is “based in Bristol, which isn’t necessarily a good place to work – but then you process an AI chip that has the most of 2 billion USD. “
She noted that distributed work has also emerged as a post-Covid trend. Some of our companies are based in the UK, and they have people working in Brazil and Asia. It doesn’t matter where they are, as long as they are good.”
The 2022 edition of EE Times’ Silicon 100, our annual list of electronics and semiconductor startups, includes five quantum computing startups. Find out who they are in EE Times Store.