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16 March 2022

Quantum computing – the next (really) big thing – 3 of 4 Insights

The investment landscape in quantum computing

Ross McNaughton looks at the focus for investment in quantum technologies.

Ross McNaughton

Ross McNaughton


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As quantum computing developments advance and real-life use cases start to emerge in sharper focus, the investment landscape within the quantum computing industry has continued to expand with investors similarly looking to achieve that quantum advantage. 

According to a McKinsey report, announced investments into quantum technology companies in 2021 amounted to $1.7 billion, which represents approximately 20 times the amount raised by the sector five years prior in 2016 and more than a two-fold increase on 2020.

So, the key questions to ask are:

  • where does (and will) the investor base come from, and
  • will this upward investment trajectory be maintained?

Before addressing those questions, it is worth drawing a distinction (or two) between the various companies operating in this space.  The principal distinction is between those developing quantum hardware, like Rigetti, D-Wave and PsiQuantum, and those developing quantum operating software, such as Cambridge Quantum Computing (now, merged into Quantinuum following its deal with Honeywell) and Riverlane out of Cambridge, UK. 

Other subsectors include quantum sensing, which is the new generation of sensors built from quantum systems, and quantum communications (Qcomms), which is the secure transfer of quantum information across space. To date, investment in start-ups has been dominated by quantum technology (hardware and software), whereas sensing and Qcomms have seen relatively modest funding levels to date.

Where has the money been coming from?

Aside from public funds (where China and the EU lead the way in terms of money deployed), to date almost half of all investment in the sector has come from venture capital funds.  Of this, approximately 90% of that amount has been invested at seed and growth stage (ie series A, B or C). The balance of the funds has come from corporates, other private sources, the angel investment community and accelerators.

Quantum hardware has received most of the aggregate investment amounts in the sector so far. This cohort of hardware companies includes PsiQuantum in the US, the largest quantum company by private funds raised (c. $730 million), which has received backing from investors including BlackRock, Baillie Gifford, Atomico, Temasek and M12, the venture arm of Microsoft. 

The weighting of funding towards hardware is perhaps unsurprising, given it is the starting point for the industry generally. Ten of the twelve largest hardware companies are based in North America so it is also not a surprise that the US is seeing the lion's share of private investment overall in terms of geographies. The UK and Canada are chasing and, within the UK, several companies including Riverlane (software), NuQuantum (hardware), Post-Quantum (Qcomms) and PeraTech (sensors) have all raised meaningful rounds recently.

Within the corporate sphere, it is well documented that many of the larger tech companies are developing their own quantum solutions in-house.  Companies like Alibaba, Amazon, IBM, Google and Microsoft have all been active in developing quantum cloud solutions, which could prove pivotal to large scale adoption.

Other corporates have turned to collaborations with third party companies, with the Honeywell – Cambridge Quantum Computing deal being the foremost among these - Honeywell is reported to have contributed $300 million into its quantum unit following the merger.

Another interesting development is that the quantum industry is now starting to take advantage of the capital markets.  For example, IonQ became the first quantum computing company to be listed on the New York Stock Exchange through its $636 million SPAC listing on 1 October 2021.  Similarly, Rigetti listed on NASDAQ on 2 March 2022, again via a SPAC, raising $261.75 million.  In February 2022, D-Wave, out of Canada, announced its intention to become the third quantum computing company to tap into the public markets via a SPAC listing.

Will it continue?

It seems likely that investment growth into quantum computing will continue.  As the limitations of Moore's Law on scaling semiconductors loom into focus and its application widely predicted to end in a few years, the draw of other areas including advanced materials and, of course, quantum computing become increasingly compelling. The past few years of research and development in the quantum space and the nearing of practical use cases have all driven a new heightened awareness of the space for investors.

Importantly though, there are also several exit opportunities beginning to present.  There are now capital market comparables, as noted above, and the sector is also proving itself to be prime for M&A activity with several interesting deals recently announced. 

Some of these, such as the merger of Pasqal and Qu&Co have sought to consolidate companies within different sub-verticals of the wider quantum industry (in this case software and hardware).

Others have been application-specific. For example, Odyssey Therapeutics, a biotechnology company pioneering next generation precision immunomodulators and oncology medicines recently acquired Rahko in January 2022 for its quantum drug discovery platform that brings together computational chemistry, machine learning, and quantum computing.  It is entirely conceivable that big pharma and others within the drug discovery space are looking at emerging participants with interest.   

Of course, life science is just one potential use case for the new quantum industry (albeit an important one).  We expect that, similarly, other established corporates within the likely verticals that could be transformed by quantum (including for example AI, finance, logistics, manufacturing and national security) could quickly become a ready source of buyers for promising companies.

All the hallmarks point to an increasing level of interest and investment in the quantum sector generally.  Technologies are developing, use cases are nearing, awareness is increasing and exit opportunities are becoming more apparent.  We therefore fully expect that more investment capital will continue to follow.

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