US-based VCs are holding tight to a large amount of cash as they navigate a capricious startup environment and investment landscape. While deemed an important enough technology to warrant export restrictions, quantum computing is not high on the list of safe investment bets, and has also suffered from the drop in funding activity. However, across the pond, things are looking brighter for the European quantum ecosystem.
That is according to a report released today by Finnish quantum hardware company IQM, along with VCs OpenOcean and Lakestar. The report analyses VC investment, government funding, as well as national quantum strategies. Globally, investment in quantum startups dropped from $2.2bn in 2022, to $1.2bn in 2023, plummeting a massive 80% in the US. However — in the EMEA region, it instead grew by 3%.
Quantum requires a patient kind of investor. Apart from a few cases where quantum computer companies have carved out a commercial niche for themselves in what is known as the NISQ (Noisy Intermediate-Scale Quantum) era, investors need to adjust their expectations on return timelines.
“To fully realise the potential of quantum computing, investors have a once-in-a-lifetime opportunity to guide quantum startups in strategic areas of the ecosystem and contribute to quantum’s strategic global growth, ” Ekaterina Almasque, general partner at OpenOcean stated in the report. Meanwhile, she also added that profiting from this “new paradigm of compute” would require funders to replicate “the success of far-seeing investors in companies like Intel, Arm, and Nvidia.”
OpenOcean first invested in IQM for the company’s $13mn seed round in 2019, and has also participated in subsequent rounds.
The European quantum startup strategy
Most European countries have developed national quantum strategies by now. In addition, the EU has stated it wants to become “the Quantum Valley” of the world.
Some quantum computing centres in Europe include the House of Quantum in Delft, The Netherlands; Quantum Basel in Switzerland; VTT’s technical research centre in Finland; and the Polish Poznań Supercomputing and Networking Center (PSNC). Furthermore, the UK’s National Quantum Computing Center (NQCC) is scheduled to open later this year in Oxford.
Speaking to Euractiv, Almasque said there is a strong correlation of the number of startups in those regions with the national labs, supported by a strategic approach across Europe.
“Basically, it [Europe] started slower to invest, but actually the investments are steadily growing, while in the US it started very sharply and then declined with a general drop in VC funding,” Almasque told the publication.
The report predicts that the key areas for quantum in 2024 will be more on-premise as opposed to cloud access due to security concerns, high short-term costs for uptime on quantum computers vs. conventional HPC systems, the quantum ‘readiness’ of teams in organisations, sustaining interest through strategic communication, and hybrid solutions for conventional and quantum computing systems.
Another key finding of the report was that interviewees believed that, while quantum machine learning should remain of importance, AI was “cannibalising” attention, investment, and interest away from quantum computing.
Indeed, quantum technologies remain a niche sector, attracting only 1% of total VC funding. But for early movers, the returns could prove nothing short of astronomical. The global quantum computing market is predicted to grow from $9.3bn in 2022, to $203.1bn by 2032.