European investor Redstone has closed €20m of a new €52m fund targeting startups focused on quantum technology.
The fund, which expects a second close within the next six months, will back seed to Series A companies and focus on quantum computing, sensing and communications.
Quantum technologies harness quantum mechanics — a field of physics that looks at the behaviour of tiny particles — and carry huge potential for many different fields.
The best-known is quantum computing, which has the potential to massively increase the power of computers to solve complex problems, including synthesising drugs to cure diseases or combat climate change.
But Redstone will also focus on other applications of quantum technologies such as quantum sensors, which have high sensitivity and enable extremely precise measurements. Quantum communications, meanwhile, enable heightened security and privacy in the transmission of data.
“Quantum really has the potential to revolutionise lots of different industry verticals,” says Chiara Decaroli, a quantum physicist who is part of Redstone’s investment team.
“The potential of quantum computing, for example, is unimaginable. It’s basically the same revolution that classical computers brought about.”
A 16-year-long fund
To launch its quantum fund, Redstone has partnered with Swiss quantum accelerator QAI Ventures. A small part of the fund will be dedicated to investments in startups from QAI’s programme, with tickets from about €200k.
The investor has already backed four companies from QAI’s 2023 summer batch and expects to invest in up to 25 startups in total from the accelerator programme.
The rest of the fund will be used to back quantum companies globally, with tickets ranging from €500k to €1.5m. About half of the fund will be dedicated to follow-up investments in top portfolio companies up to Series B rounds.
The investor expects to make around 20 investments in total over the next 10 years — but this could be extended.
“We could have a model of up to 16 years for this fund because the market is early, both for hardware and for enablers,” says Marco Stutz, investment director at Redstone. “As they mature, things could take longer than for other typical funds.”
Investing in quantum technologies
Although quantum technologies are promising, they are still in their early days.
This is particularly the case with quantum computing, which remains in what's known as the NISQ era — Noisy Intermediate Scale Quantum — in which error rates and the limited size of quantum processors significantly limit the power of quantum computers.
A growing number of startups are emerging with different approaches to build a fully fledged quantum computer, but they typically need big tickets from investors to fund expensive labs and sophisticated research tools.
“Quantum computing hardware startups are a bit expensive for us,” says Decaroli.
Instead, Redstone will focus on different parts of the quantum ecosystem, such as quantum algorithms and middleware — software that bridges the gap between quantum computers and applications, for example by enabling error correction.
Startups building quantum algorithms are already gaining traction as businesses start exploring the potential of the technology to solve problems ranging from optimising portfolio performance in banking to streamlining the process of drug discovery.
The challenge, says Decaroli, is that the quantum solutions that exist today are tailored to the NISQ era –– and are likely to change as quantum computers become more capable.
“We need to know where we technically are today because this dictates what is needed at this point in time,” says Decaroli. “But as we move, new things will be needed. So we must have an investment strategy that evolves with the technology.”
Despite this, Redstone sees a big opportunity in the field. Decaroli says that unlike in the past, quantum is no longer confined to research labs and that the commercial potential of the technology is emerging fast.