Arma Partners: “Clear Opportunity for Venture Growth Investors to Support the Emergence of Global Quantum Computing Sector”

(Forbes) Despite its monumental problem-solving potential, quantum technology has been, until recently, largely overlooked by the global investment community as a niche and somewhat esoteric segment of the technology landscape. Even as record volumes of capital poured into private technology companies through venture capital, growth capital and private equity funds in the past decade, only $1.4bn was invested into quantum technologies – approximately 0.25% of the total value of venture capital fundraising between 2010 and 2019, according to PitchBook.

NOTE: Author is Paul-Noël Guély, Founder and Managing Partner of Arma Partners, the independent financial advisory firm focused on companies and investors active in the global Digital Economy. Arma Partners works with established industry leaders as well as high growth, younger businesses. IQT-News has summarized Guély’s extensive article here.

The technology was primarily conceived of as a security risk, due to its potential to crack the RSA and AES encryption system that underpins large volumes of secure data transmission globally. Accordingly, it had been viewed as a more obvious focus area for national governments, rather than venture capital firms with investment horizons, exit pressures and return expectations.
But this is changing as the commercial applications of quantum computing develop rapidly.
Emerging commercial applications are helping to drive some incipient M&A activity in the field. Honeywell, the US technology conglomerate, is acquiring Cambridge Quantum Computing, merging the start-up with its in-house quantum computing operations and injecting up to $300 million into the new venture.
Deal activity will likely remain low for the foreseeable future. The market is still largely split between a handful of technology giants and a long tail of pre-profit and pre-revenue start-ups, leaving few obvious acquisition candidates, for either private equity investors or strategic buyers. While quantum computing businesses like IonQ Inc and Arqit recently listed on the NYSE and Nasdaq respectively, via Special Purpose Acquisition Companies (SPACs), this shouldn’t be interpreted as a sign of market maturity.
It is venture capital investment and growth financing activity that is likely to be much more buoyant, as quantum computing start-ups seek funding to support their growth and subsidize the expensive and tricky process of developing this cutting-edge technology.
Global technology giants have been at the forefront of financing activity, principally through their venture capital arms, alongside funding their own in-house R&D.
There remains a clear opportunity for venture and growth investors to support the emergence of the global quantum computing sector in the coming years. Both financial and strategic funders will play an important role in the ecosystem. But recent breakthroughs are no guarantee of smooth sailing in the future. Venture and growth capital funds must recognize that this is a market where the technology risks are high – but commensurate with the potential returns.