What’s the Big Deal about Quantum?
(Reposting a quick piece on Quantum from early 2021)
Industry Overview: DeepTech — Quantum Computing
Though still nascent with only experimental use cases, Quantum Computing (QC) has enjoyed whopping interests from the capital market. Global investments in QC-related companies reached $1B so far in 2021, more than the previous three years combined. The projected global market size is expected to be ~$500M in 2021 and reach $3B by 2030 at a CAGR of 25% from 2021 to 2030.
What the above data is also telling, apart from the obvious market interest, is that QC is receiving investments twice the size of its market size (Blockchain too, the investment being is 3X its market size of $6B in 2021), and that at least for now, the Quantum computing industry is minuscule compared to other hot areas such as AI ($29.5B) or Blockchain ($17B).
Reading up to this point, one may wonder that given that the technology will not be ready for years and the market size is inconsequential, why should they care about Quantum Computing? A lot of reasons. In this industry analysis, I will cover the top concerns & questions around this fledgling technology from an early-stage investor’s perspective. What I will not cover is the fundamentals/primer of Quantum Computing, assuming that the audience of this article is already familiar with basic QC concepts such as superposition, qubits, entanglement, etc.
Why does Quantum Computing matter more than indicated by its projected market size?
There are three predominant reasons:
1. Quantum advancement is now part of the U.S.’s national interest to compete with China technologically. The U.S. has been the front-runner of innovation for many areas. But in quantum, its supremacy is being seriously challenged by China in terms of # of patents & areas of quantum communication and cryptography. Biden has vowed to catch up, having pledged $1 billion to the effort alongside companies including IBM, Microsoft, and Intel last year to accelerate the US’s R&D efforts among established enterprises & startups.
2. The maturity of Quantum technology will spur tremendous growth in industry verticals such as BioTech, Financial Services, and Logistics. The adoption of quantum computers will unlock unprecedented innovation & breakthroughs that are now unfathomable because of computing power limitations. For example, merely modeling a penicillin molecule would require a classical computer with more transistors than there are atoms in the observable universe, whereas the same process could only take a snap on an advanced quantum computer. The same goes for the FSI and Logistics industries: quantum has prime use cases for whenever there’s an R&D bottleneck caused by computing power limitations to solve large-scale combinatoric problems/simulations. Additional examples are market simulations in FSI, calculating optimal routes in logistics, and pinpointing complex process failures in manufacturing.
3. Talent: more and more accredited institutions, most notably MIT and Waterloo, are providing education & training on quantum computing. There will be a huge influx of talent into the space to further accelerate its advancement & adoption.
When will it be ready?
When skeptics say quantum computers will not be ready for at least another two decades, they are likely referring to quantum computes as consumer goods. Indeed, the $15 million D-Wave 2000Q has a long way to drop before it makes it to BestBuy. But for enterprise & government use, the advent of commercialized computer computers could be as early as 2030. In order for a quantum computer to be commercially viable, at least 1,000 qubits are needed. The front-runners in the space, IBM and Google, are racing to achieve such milestones. This year, IBM debuted a 65-qubit “Hummingbird” processor, with plans to scale up to 433 qubits in 2022, while Google’s quantum A.I. research group revealed that Google is poised to build a 1 million-qubit quantum computer by 2030 too. In short, Quantum Computer is arriving sooner than one’d think.
Road to Adoption
In addition to the minimum requirement of at least 1000 qubits to achieve quantum advantage, there are two more hurdles to overcome in order to fully realize quantum computers’ potential: 1. getting enough qubits and creating the quantum state (low temperature, zero noise) to reduce error rate resulted from an unstable environment, and 2. developing software to bridge the gap between classical computers and quantum computers. There are significant potentials for startups who can target & solve the above two adoption pain points.
Who are the major companies and investors in the space?
Startups: below is a summary of global startups in the quantum space, created from scraping web data. There are 223 companies (excluding the tech giants) across the globe, spread across sub-segments such as software (e.g. algorithms to run on quantum computers), Hardware (e.g. temperature control), Education (e.g. paid programs to learn about QC), etc.
Incumbents: tech giants have natural advantages in this space because of the capital intensity to build quantum computers, create & maintain quantum states, and other R&D activities. The biggest names in quantum are unsurprisingly Google, IBM, Honeywell, Microsoft, Hewlett Packard, Alibaba, among other tech giants. In the startup world, there are 215 quantum-computing related startups recorded in Crunchbase, the top 15 being series B or later, having a long tail of seed & series A companies.
Investors: Top investors in Quantum Computing are of four categories. Below is a view of the top 15 quantum startups by funding stage.
1. Corporate venture: Google Venture, Amazon, Intel Capital, Tencent, Samsung Next, IBM Venture
2. Traditional VCs: our very own Alumni Venture, Tiger Global, Sequoia, Bessmer Venture Partners, Lux Capital, Battery, etc.
3. Financial institutions (PE, Investment Management funds): Goldman Sachs, Fidelity, Blackrock, Silicon Valley Bank, etc.
4. Government: Canadian government fund (backing D-wave), Australia Government of defense, etc.
While most later-stage rounds are led by prominent investors in the above four categories, there are still ample early-stage, non-capital intensive investment opportunities because of the long tail (>200) of seed & series A startups. Below is an analysis of the major sub-categories by region within the quantum investing space:
To build out my portfolio of the top 10 startups, I’ve taken the diversification approach to select one or two startups from each sub-category, with a slightly heavier focus on the software side. Additionally, the companies I’ve picked have not exceeded $5 in VC funding, allowing room for greater upside.
Hardware
1. I am particularly excited about BraneCell Systems because it builds decentralized Quantum Computing operating at room temperature, overcoming cryogenic cloud limits, towards Classical-to-Quantum™ migration. As alluded to earlier, one of the biggest adoption challenges is about creating a quantum state for Qubits to do their jobs. If BraneCell successfully enables quantum computers to operate in room temperature, it could be a huge leap in the adoption push for the technology.
Multiple: Bridging software & hardware
2. Super.tech develops software that speeds up quantum computing by bridging the gap between applications and hardware.
Software startups:
3. Horizon Quantum Computing is an interesting startup to keep an eye on. It’s still in the pre-A stage, having closed a 3.21M round about a year ago. Their value proposition is to bridge the gap between quantum computers and conventional software development. The company’s product is a tool to simplify and expedite the process of developing quantum software applications and increase the productivity of experienced computing researchers, enabling software developers to harness the full power of quantum processors without having any prior exposure.
I see tremendous potential for Horizon Quantum Computing’s offering, as it addresses one of the two main obstacles to mass adoption head-on, which is the integration of software/programming languages between a classical computer and quantum computers. This startup also picked a strategic product-market fit area to complement the main players in quantum computing to help onboard developers & accelerate adoptions.
The risk to the investment is the dependency on the technological maturity of QC. Horizon will only scale & generate sizable revenue until quantum computing technologies are mature & commercialized, which will still likely take years. That being said, as the overall market interests heat up around QC, Horizon Quantum Computing could garner significant interests from later-stage & corporate investors.
4. QANplatform is the Quantum-resistant hybrid blockchain platform. By combining the computing power of quantum and blockchain, QANplatform’s customer can build software applications like DApps or Defi and run business processes on blockchain in 5 minutes. The concept to combine these two technologies is very interesting because the biggest hurdle to Blockchain adoption is deficient processing speed. Once the Blockchain & Quatum tech becomes more mature, the intersection between these two technologies could enjoy tremendous growth.
5. Entropica Labs builds models, algorithms and techniques for optimization with quantum computers.
Education/IP Platform
6. Quantum Thought is a venture studio for commercializing quantum computing intellectual property, products, and companies
Cybersecurity
7. QuSecure creates security and communication products that secure enterprise and government in the quantum computing era, especially amid the increasing technological competition between US and China.
Bio-tech
8. Polaris Quantum Biotech joins quantum computing with AI and precision medicine. Given the immense potential for quantum computing to revolutionize drug design & bio-engineering, Polaris Quantum is my top pick in the bio-tech domain
Education
9. The Institute for Quantum Computing is a scientific research institute at the University of Waterloo. The education and incubation of talent in the quantum space is another important area not to be overlooked.
Consulting
10. Quacoon spans across Quantum Computing and Artificial Intelligence to accelerate the adoption and execution of quantum computing and artificial intelligence for enterprise customers.
Sources:
https://www.yahoo.com/now/venture-capital-funds-invested-record-101256348.html
https://futurism.com/when-will-quantum-computers-be-consumer-products
https://research.aimultiple.com/quantum-computing-applications/
https://www.ibm.com/quantum-computing/learn/welcome/
https://quantumcomputingreport.com/privatestartup/
https://www.bcg.com/capabilities/digital-technology-data/emerging-technologies/quantum-computing
https://builtin.com/hardware/quantum-computing-applications
https://www.nature.com/articles/d41586-019-02935-4
https://pitchbook.com/news/articles/quantum-computing-venture-capital-funding
https://www.cbinsights.com/research/report/top-tech-trends-2021/