Why Don’t More Venture Capitalists Invest In Quantum Computing?

Published by whurley (10/12/2017)

With a Quantum Computing Future Quickly Approaching, Where’s the Investment Needed to Drive Innovation?

As I travel around the world meeting and working with the leading quantum computing companies and startups, I often wonder why more venture funds don’t invest in quantum computing yet. When I first looked at the quantum computing ecosystem last year, just a few of companies dominated the landscape, most notably D-Wave and Cambridge Quantum Computing. MarketWatch only projects the quantum computing market to be somewhere around $5 billion by 2020. That’s a fairly modest size, but considering the number of other markets quantum computing will impact, I think that number will be much higher by 2025.  Persistence Market Research agrees with me.

Startups That Have Received Funding

Back to the startups, not all companies publish their funding profiles, but here are a few quantum computing startups and what they have raised to date:

  • D-Wave Systems: $174,679,703
  • Rigetti Computing: $69,450,000
  • Cambridge Quantum Computing Limited: $50,000,000
  • IonQ, Inc.: $20,000,000
  • Post-Quantum (PQ Solutions): $10,418,000
  • Xanadu: $2,500,000
  • Firebird: $65,000

If you search resource sites, you’ll find limited info. For example, one of my go-to sites, Crunchbase, only lists 18 companies with the words “quantum computing” in their description. Take away MITRE Corporation, The Institute for Quantum Computing, and the UNICEF Innovation Fund, and you’re left with 15.

Venture Capitalists that Are Investing in Quantum Computing

Last year SoftBank Group’s Vision Fund publicly announced it is scouting for investments in the quantum computing space. Outside of public ads like that, it can be tricky to figure out which VCs are investing. Fortunately, Doug Finke has put together an awesome website called the “Quantum Computing Report.” He lists 38 venture funds and the companies they have invested in. Though 38 sounds impressive, only 13 quantum computing companies have received investment funds. Of the 38 venture funds, 15 of them invested in Regetti Computing, and 10  invested in D-Wave. That means the remaining 18 funds invested in just 10 companies.

Meanwhile, the “Big Three” Double Down

I’m surprised there aren’t a larger number of deals going down, because I see the deal flow. I also see spending from major research organizations, governments, and the “Big Three:” Google, IBM, and Microsoft.  These titans are putting big dollars into quantum computing. Not just in R&D, but in public relations as well. Microsoft recently announced that it will release a to-be-named programming language for quantum computers later this year.  The language will be integrated with Visual Studio and come with a quantum computing simulator. By getting out in front, Microsoft hopes it becomes the de facto standard for programming quantum computers.

What the VCs Have to Say

I reached out to some of my contacts to try to answer the question, “Why don’t more venture funds invest in quantum computing?” Alexander Rosen from Ridge Ventures didn’t think it was a hard question. “VCs like high gross margin / zero marginal gross margin business like software, and most quantum computing companies that I’ve seen are hardware intensive.  The work so far has been mostly ‘R,’ not even R&D.  That means there are few tangible projects that can turn into revenue-generating companies.”  He did admit that “VCs react to what great founders want to do,” and that he had seen few to no founders with quantum computing projects. “Maybe that means we need to be more proactive.”

Adam Goldberg, a partner at Lightspeed Venture Partners, told me, “The hard thing about frontier spaces like quantum computing is that being too early is the same as being wrong. For investors, it’s a delicate balance between the current market opportunity and envisioning the potential of a disruptive technology that doesn’t fully exist yet. I’m very excited about Quantum Computing so I’m meeting a lot of founders in the space with an open mind.”

Quantum computing is going to change the world.  As I type, there are plenty of chances to invest out there. Venture capital isn’t coming close to filling the gap yet. We need more investment in early-stage startups, especially on the software side, to continue to drive innovation and the transition from the lab to the market.  We also need visionaries who can sell savvy VCs on the transitional projects that are on the horizon.

If you’re a startup looking for funding, or a fund looking to invest in quantum computing, reach out to me. I’m happy to play matchmaker.