Quantum computing (2024)

Of all the VC-backable sectors out there, quantum computing is one of the trickier ones.

The promise is huge: quantum computers could eventually unleash unprecedented computing power, with the potential to bring about huge progress and value in fields ranging from drug discovery to financial portfolio optimisation.

For now though, quantum computers are too small and too error prone to have any significant impact in the real world. A recent joint report by Finnish startup IQM Quantum Computers and deeptech VCs OpenOcean and Lakestar, states that practical uses of quantum computers could be anywhere between five and 20 years away.

The field has been moving slowly — Big Tech companies in the US like Google and IBM started to take an interest in quantum computers over 15 years ago. Today, IBM is a global leader in the sector, with a 1k-qubit quantum computer released at the end of 2023 — but it is competing against a number of companies across the world that are racing to build a fully-fledged quantum device.

Europe is home to a fair share of these companies; the best-funded include the UK’s Quantinuum and Oxford Quantum Circuits (OQC), Finland’s IQM Quantum Computers, and France’s Pasqal and Quandela.

There is keen interest from governments and large corporations in pharmaceuticals, finance and automotive to work with these players to figure out how quantum computers might deliver value in the future. And last year, some of these scaleups — including Pasqal, Quandela and OQC — started selling and delivering quantum computers to customers, meaning that they are now bringing in revenue. That’s a sign of the sector moving forward.

Another symptom of this is the diversification of the ecosystem: after a first phase that saw companies focus largely on building physical quantum computers, a number of startups have launched in recent years to build the stack around the devices — from developing quantum algorithms to software that can help mitigate the errors made by quantum computers.

The top five quantum computing deals announced this year in Europe feature hardware companies like Quantinuum (which raised a record $300m in January), but also UK-based Riverlane ($75m Series C), which builds error-mitigation technology, and PQShield ($37m Series B), which develops products that are safeguarded against quantum threats to conventional cryptography.

VC money for quantum computing in Europe is increasing. In 2023, startups in the sector received $622m — nearly 30 times the amounts invested in 2018 ($22m).

It is still a niche technology, representing 1% of global VC funding, according to IQM, OpenOcean and Lakestar’s report — but private investments paint only a small part of the picture.

Much of the funding for quantum computing today still comes from governments — with European countries handing out large cheques to startups in the sector. The most active investors in the region are the European Innovation Council and the European Innovation Council (EIC) Fund; Innovate UK and French public bank Bpifrance also feature in the top ten.

Several of the most advanced quantum computing startups in Europe are now hitting Series B and beyond, such as OQC, Pasqal, Quandela and IQM. This means that they will soon be looking to secure bigger rounds of capital — think hundreds of millions, rather than tens of millions.

It’s likely they’ll soon need to look across borders — and most likely, across the Atlantic — to find deeper pockets.