The European Quantum Computing Startup Landscape
The upcoming years might very well be an exciting time to invest in quantum technologies. Below are some of the aspects that contribute to this belief.
Almost exactly a year ago, in October 2019, Google researchers claimed to have attained a pivotal quantum computing milestone (i.e. quantum supremacy: the point where quantum computers can do things that classical computers cannot) for the first time as noted in a paper published in Nature. Google’s 53-qubit quantum computer, named Sycamore, took 200 seconds to perform a calculation that would have taken the world’s fastest supercomputer 10,000 years.
In more recent weeks, more exciting news came out of the quantum research labs of several companies: IBM announced its updated quantum roadmap and predicted to have developed a 1,000-qubit machine by 2023 (IBM’s current quantum processor has 65 qubits). D-Wave revealed the launch of its new Advantage quantum computers based on a quantum annealing approach with over 5,000 qubits and made it available through its Leap cloud computing platform. Trapped-ion quantum computing startup IonQ claimed to have built the world’s most powerful quantum computer yet with 32 qubits. European quantum computing startup IQM published a quantum computing breakthrough in Nature after having developed an ultra-sensitive nanoscale bolometer that detects very faint microwave radiation which can be used to measure the energy of photons (and thus the state of a superconducting qubit) much more accurately.
In this article, I won’t dive into the fundamental quantum concepts such as decoherence, entanglement, superposition, or NISQ, but leave it to the experts to explain those concepts (a good primer on quantum computing can be found here). Instead, I will focus on the quantum computing startup activity in Europe. However, before we examine the European quantum computing startup landscape, let’s first develop a brief understanding of where the industry is at right now and the potential applications of quantum technology.
State of the Qubit — The Evolution of Quantum Technology
When describing the evolution of quantum technology, experts usually speak of a first and a second quantum revolution. In the first quantum revolution, which took place in the first half of the twentieth century, the field of quantum physics was created. In this period, the theoretical concepts and scientific foundations were established. The focus of this fundamental science has been on the discovery and control of quantum effects and properties. It led to the development of technologies such as lasers, transistors, solar cells, GPS, or medical imaging. Now, the second quantum revolution is underway. It builds on the premise of manipulating the individual states of single quantum particles such as photons, electrons, and atoms. Quantum mechanical concepts such as superposition, entanglement, and quantum correlations are harnessed. We are now at a point in time where the level of control of these phenomena is starting to be mature enough to be used for real-world quantum applications such as computing, secure communication, sensing, and simulation.
The figure below presents an overview of some of the milestones in the evolution of quantum technology with an emphasis on quantum computing.
Applications of Quantum Technology
There are three major applications of quantum technology: quantum communication, quantum sensing, and quantum computing.
1. Quantum communication
Quantum communication encompasses the field of building ultra-secure communication systems. In recent years, a number of high-profile hacks have exposed sensitive information such as credit card details. Usually, sensitive data is encrypted and a digital key is required to decode the information. However, as these hacks show, the data can be corrupted when it is transmitted over fiber-optic cables. On top of that, hackers leave no traces when intercepting the information. Quantum communication, however, uses quantum physical properties to prevent this as hackers cannot intercept the data without being perceived. This approach leverages a concept called Quantum Key Distribution (QKD) which enables ultra-secure communication networks. Such networks allow the protected, digital transmission of sensitive data such as health records, financial transactions, or companies’ proprietary information. A good primer on quantum communication can be found here.
China is leading in the field of quantum communication. In 2017, it conducted the first-ever QKD-secured video conferencing call between Beijing and Vienna. This summer, China reached another milestone in quantum communications: Its Micius satellite (a Chinese satellite only dedicated to quantum communication) successfully established an ultra-secure communication link between two ground stations separated by more than 1,000km.
2. Quantum sensing
Quantum sensing, or quantum metrology, uses quantum states for measurement and specifically their extreme sensitivity to disturbances. Because of that, quantum sensors can be used for highly sensitive measurement tasks where high precision is needed. This concept is already used in applications such as atomic clocks, laser distance meters, and magnetic resonance imaging for medical diagnosis. Now, individual quantum states can be manipulated to increase the sensitivity even further. This opens up an additional number of exciting use cases ranging from ultra-high precision microscopy, clocks, and positioning systems (e.g. for autonomous vehicles) to the detection of small doses of explosives, poisons, or raw materials deposits (e.g. rare earth elements) to below-cell-level medical imaging for less invasive diagnosis to brain-machine interfaces.
3. Quantum computing
Quantum computers leverage the quantum mechanical properties of quantum bits, qubits, to achieve computing capabilities which promise to exceed those of today’s most powerful supercomputers by magnitudes. Quantum computers are expected to accelerate computational tasks such as optimization problems, differential equations, linear algebra, and factorization. The following are some of the likely commercial applications:
- pharma: faster development of new drugs (how exciting in times of a pandemic!)
- chemistry: molecular simulation for the discovery of new materials (e.g. for battery cells and fertilizers)
- fluid dynamics simulation for automotive and aerospace applications
- network optimization (e.g. for most efficient traffic routing to combat congestion and emissions)
- cryptography and cybersecurity
- weather forecasting and climate change
- chip layout optimization in the semiconductor industry
- finance: risk management, portfolio optimization, and market simulation
- supply chain optimization (e.g. most efficient planning and routing)
- marketing and customer segmentation
To illustrate the advantages of quantum computers compared to conventional computers, let’s take penicillin as an example of a drug discovery process in pharma:
“For scientists trying to design a compound that will attach itself to, and modify, a target disease pathway, the critical first step is to determine the electronic structure of the molecule. But modeling the structure of a molecule of an everyday drug such as penicillin, which has 41 atoms at ground state, requires a classical computer with some 10^86 bits — more transistors than there are atoms in the observable universe. Such a machine is a physical impossibility. But for quantum computers, this type of simulation is well within the realm of possibility, requiring a processor with 286 quantum bits, or qubits.” (Source: BCG)
Quantum computing is maturing with the advent of more powerful quantum processors with an increasing number of qubits, longer coherence times and gate fidelities, more developer tools such as compilers and libraries, and better algorithms suited for quantum computing (e.g. Shor’s or Grover’s). The addressability of the aforementioned applications will largely depend on the sophistication of the underlying technology. Hence, with a maturing quantum technology being able to address more and more complex applications, the corresponding commercial impact will increase x-fold. While the specific timing is still unknown, as the following figure shows, the resulting business value is expected to be tremendous and could well be in the hundreds of billions of dollars.
The European Quantum Computing Startup Landscape
By diving into the European quantum computing startup landscape, I will mostly focus on the application of quantum computing and aim at answering the following questions: What are the recent developments in quantum science? What are the leading research institutes for quantum technologies across Europe? What does the current startup activity in quantum technologies look like? Which are the different funding mechanisms that are available for startups in the field? How do funding levels differ across categories and countries? What are the most attractive market segments from a VC point of view? Below is a summary of some of the findings.
Methodology
To analyze the European quantum computing startup ecosystem, data sources such as Crunchbase, Tracxn, company announcements, and press releases as well as UVC Partners’ deal flow were used. For funding levels, only publicly available equity funding data (i.e. no public grants) was considered. The startups were selected according to the following criteria: founded after 2010 and headquartered in Europe (including Israel, Russia, and Turkey). Companies that went out of business and where the primary application was not quantum computing-related (e.g. research and consulting firms) were eliminated from the sample. Over 270 startups were initially identified and 69 qualified according to the described criteria.
A Bird’s View
The 69 European quantum computing startups that were founded since 2010 raised a total of just over €150m to date. Only one exit was recorded, albeit from a company founded in 2001: ID Quantique was acquired by SK Telecom for €55m in 2018.
When looking at the geographical spread of startups across Europe, the UK leads the scoreboard with 23 startups followed by Germany (13), France (7), Spain and Switzerland (4 each), and Finland and The Netherlands (3 each). As expected, three cities from the UK are among the top five cities in terms of the number of startups: London (8), Cambridge (3), and Oxford (2). Three startups in our sample are from Berlin. Barcelona, Helsinki, Innsbruck, Lausanne, and Munich are home to two startups each.
Unsurprisingly, UK startups raised the most funding (€85m), followed by Finland (€27m), Israel (€20m), and Switzerland (€12m). Quantum computing startups in France (€3m) raised significantly less. However, it has to be noted that these numbers are driven by a few outliers which are the most funded startups in Europe to date in terms of publicly disclosed equity funding: Cambridge Quantum Computing (€44.3m; Cambridge, UK), IQM (€26.5m; Espoo, Finland), Quantum Machines (€19.5m; Tel Aviv, Israel), Terra Quantum (€10.0m; Rorschach, Switzerland), and Quantum Motion Technologies (€8.7m; Leeds, UK).
Category Deep Dives
Hardware startups are segmented in two subcategories (yes, some startups could fall in various clusters): Computing and Components & Materials. The 25 hardware startups raised a total of €47.6m to date.
Hardware — Computing
- Definition: startups that are developing hardware products specifically dedicated to the computing function of quantum computers
- Number of startups: 12
- Total funding: €42.1m
- Most funded company: IQM (Espoo, Finland), €26.5m
- Examples: IQM, and Quantum Motion Technologies
IQM develops superconducting quantum computers with application-specific processors in a hardware-software co-design approach. The hardware is based on a proprietary chip technology that allows them to significantly speed up the clock speed of quantum processors. The ultimate goal is to deploy their quantum computers on-premise at their customers’ facilities. IQM is a spin-out from Aalto University and VTT.
UK-based Quantum Motion Technologies develops silicon spin-based qubit architectures for fault-tolerant quantum processors that are compatible with standard CMOS fabrication and, therefore, potentially easier to scale to thousands or even millions of qubits. The silicon spin technology and architectures were developed at University College London and at Oxford University.
Hardware — Components & Materials
- Definition: startups that are working on peripheral technologies of quantum computers such as cryogenics
- Number of startups: 13
- Total funding: €5.5m
- Most funded company: Nu Quantum (Cambridge, UK), €3.1m
- Examples: kiutra, and Nu Quantum
Germany-based kiutra is a spin-off from the Technical University of Munich and commercializes cryogen-free (and, thus, helium-3 free) refrigeration systems based on a magnetic cooling approach. In contrast to other commercial magnetic refrigerators, their modular technical approach allows for continuous cooling at sub-Kelvin temperatures.
Nu Quantum, a quantum photonics spin-off from the University of Cambridge, develops single-photon components to enable the next generation of commercially-viable photonic quantum technologies. The startup uses nano-engineered materials to make quantum devices that can emit and detect single-photons. The devices can operate at room temperature and have the future capability of fitting multiple on a chip. As a first use case, Nu Quantum will deploy the technology to generate random numbers to be used for cryptographic keys to secure data.
Software startups are segmented in the two subcategories Operating Systems and Applications. The 44 software startups raised a total of €103.0m.
Software — Operating Systems
- Definition: startups that are developing quantum operating systems, compilers, and quantum programming languages and tools
- Number of startups: 5
- Total funding: €23.4m
- Most funded company: Quantum Machines (Tel Aviv, Israel), €19.5m
- Examples: Quantum Machines, and Riverlane
Israel-based Quantum Machines brings a quantum orchestration platform to the market. It is a combination of custom hardware and software tools that can be used to control virtually any available quantum processor (superconducting, trapped-ion, etc.). The startup built a proprietary pulse processor that can handle multi-qubit manipulation. On top of that, Quantum Machines developed software to write algorithms in the startup’s QUA programming language.
Riverlane, a spin-out from the University of Cambridge, develops software that transforms quantum computers from experimental technology into commercial products. The startup commercializes a new operating system for quantum computers. Inspired by heterogeneous architectures, its operating system makes all computing elements in the stack accessible — CPU, FPGAs, and qubits. This empowers quantum programmers to implement fast operations at the right level in the stack. Its operating system comes with its own programming language and application library.
Software — Applications
Application software startups are further grouped in three subgroups: Security & Encryption (19 startups, €19.6m total funding), Chemistry & Pharma (11 startups, €48.7m total funding), and Other application software startups (9 startups, €11.3m total funding).
- Definition: startups that are working on quantum computing application software targeted at various use cases and industries
- Number of startups: 39
- Total funding: €79.6m
- Most funded company: Cambridge Quantum Computing (Cambridge, UK), €44.3m
- Examples: HQS Quantum Simulations, and Rahko
Germany-based HQS Quantum Simulations, a spin-off from the Karlsruhe Institute of Technology, predicts the properties of molecules and materials using quantum computers and thereby accelerates development cycles in the chemistry and pharma industries. While current quantum computers suffer from intrinsic errors that limit their performance, HQS develops algorithms that can deal with these errors and enable customers to profit from the performance advantage of quantum computers earlier than their competitors. In addition, the company offers individual simulation solutions for conventional computers with the integration of high-end simulation methods and the possibility to utilize them with upcoming quantum computers.
Rahko, a UK-based startup associated with University College London, applies machine learning to quantum computing for chemical simulations. The company specializes in quantum machine learning for faster and more accurate simulation of drugs and materials for the discovery and development of new molecules and materials at a greatly reduced cost. The current models developed by Rhako will also be able to be deployed in future quantum computers, once the devices are at scale.
Comparison of European and North American Funding Levels
Given the very moderate funding level for European quantum computing startups described above, let’s have a look at how it compares internationally. As can be seen below, while the number of quantum computing startup investments (i.e. funding rounds) in Europe increased in the last few years and was on par with North America in the last two years, the venture capital funding volume flowing into quantum computing startups in North America is still a magnitude higher. Over this nine-year timeframe, North American startups in this segment raised over €1bn compared to €136m raised by their European counterparts. In other words, on average, a quantum computing startup in the US receives almost 5x the funding its European counterpart receives (average deal sizes of €14.3m in North America vs. €3.0m in Europe). Both equity funding volumes and the number of funding rounds increased in both geographies over the last few years.
European Quantum Computing Research Hotspots & Initiatives
Europe has a long-standing tradition and expertise in quantum research which dates back to the origins of quantum physics in the first decades of the 20th century. Its excellent research universities are a well-respected breeding ground of international quantum talent. Europe’s focus on a range of different fields in quantum technologies enables collaboration across research institutes as well as across borders, which in turn fosters interdisciplinary innovation.
Thus, and given the research-heavy nature of quantum computing, there is a strong link between the startup activity in this field and research institutes. Most startups are direct spin-offs from research groups such as AQT (University of Innsbruck), Delft Circuits (TU Delft), HQS Quantum Simulations (Karlsruhe Institute of Technology), IQM (Aalto University & VTT), Oxford Quantum Circuits (University of Oxford), or Qilimanjaro Quantum Tech (University of Barcelona).
The figure below shows a snapshot of some of the quantum computing research hotspots and initiatives across Europe.
Public Funding for Quantum Technologies in Europe
While Europe has a long history of financing research in quantum technologies, funding from industry players was highly selective over the past decades and limited to companies in the areas of computing, laser, and telecommunication. However, driven by technological advances in recent years, the industry has rediscovered its interest in quantum technologies. Companies are increasingly looking to integrate those technologies into their products or to use it for internal R&D efforts.
As presented above, private funding (i.e. venture capital) into startups commercializing quantum technologies is rather limited in Europe compared to the capital investment in North America. Fortunately, the situation looks different when examining public funding levels: Through the Quantum Flagship initiative under the Horizon 2020 research framework program, the European Union committed €1 billion for quantum research projects over the period 2018–2028. Moreover, Germany recently announced €2 billion for the development and set-up of at least two quantum computers in the country. In comparison, from 2019 to 2028, the United States will invest $1.2 billion into quantum technologies. However, this is dwarfed by China which will spend about $10 billion for its new National Laboratory for Quantum Information Sciences.
Quantum technologies have become of high geopolitical relevance which is why there is an ongoing global race to conquer the market and to secure key know-how and technologies. For European startups to thrive in an environment of limited private funding, surely more public funding will be required to help commercialize quantum technologies being developed by leading European research institutions.
The Next Quantum Leap
The next few years could be a pivotal point in time when quantum science is advanced enough to make its way from research labs into real-world applications in fields such as quantum communication and sensing as well as quantum computers itself. Given the massive impact these quantum technologies could have, I’m extremely excited about recent developments and what the quantum future will bring. Just like it was unimaginable 20 years ago the kinds of innovation an iPhone could bring with it, I’m positive quantum technologies will bring with them an even larger plethora of new use cases and applications. Thus, I believe there are plenty of exciting opportunities for startups to innovate and to build category-defining businesses.
If you are a founder or researcher working on the future of quantum technologies, I’d love to hear from you. As always, I’d like this post to be a starting point for general discussion — no matter if you’re a founder, industry expert, or fellow investor — so feel free to reach out at kiltz@uvcpartners.com.
Disclaimer: UVC Partners is an investor in HQS Quantum Simulations.
