Signs of a Slowdown in Private Quantum Investment in the First Half of 2023

Insider Summary

• Data from The Quantum Insider Intelligence Platform shows funding rounds in the quantum industry slowed in the first half of 2023 compared to the same time last year.
• Investing in quantum computing remains stable.
• Analysts are not ruling out statistical deviations from year to year and point towards other positive signs, including suggestions of new deals in the pipeline and improving economic conditions.

The pace of commercial investment in quantum has decreased in the first half of 2023 compared to the same time frame in 2022, according to statistics from The Quantum Insider Intelligence Platform.

At the end of June 2022, the total funding round investment in quantum is set to be around $1.3 billion. Currently, the total for Q1 and Q2 2023 is approximately $0.6 billion, or nearly half of the 2022 figure.

Investment in quantum software has declined markedly, but quantum computer makers made $315 million in the first two quarters of 2022, nearly matching last year’s investment level of $329 million.

Is There a Problem with Quantum Investing?

Before we hit the panic button, several reasons can explain the decline in investment.

First, funding rounds rarely run linearly and certainly don’t follow fluid financial timelines. They tend to beat in clumps. Therefore, it may not be fair to compare two random quarters in one year with a similar stretch in another year, nor is it suitable to accurately predict the remainder of the year.

The way information about funding rounds hits the market doesn’t follow arbitrary timeframes – such as annual or quarterly figures – either. A recent good example is Sandbox AQ’s half billion funding round, which was captured in our market intelligence when it was announced in late 2022. However, it was confirmed more broadly in early 2023. That $500 million would significantly narrow the gap between years 2022 and 2023 numbers if included in Q1 2023 numbers.

It is also possible that the strong funding environment in 2021 and 2022 provides quantum companies with a sufficient foundation to operate beyond 2023. Since quantum is a relatively small — but emerging quickly — niche, there may be few new companies seeking funding. Nonetheless, our analysts understand that many quantum companies are actively seeking financing, or at least preparing.

We should not rule out macroeconomic trends. In 2022, the tech field has been hit hard by the post-pandemic economic restart. Rising inflation and soaring interest rates are also taking their toll on the economy. Whole VC investing in the US fell from $81 billion in Q1 2022 to $44 billion in Q1 2023. Most experts were surprised that the nascent quantum industry had not been hit harder. It is possible that this macroeconomic wind will finally hit the quantum market.

Finally, some quantum companies—now in the spotlight as publicly traded companies—have stuttered. The boom in the Special Purpose Acquisition Company market—on which some quantum startup leaders are counting on to take their companies public—could skew the comparisons. The shuffling of quantum corporate top brass and the news of emergency loans may also have created jitters around quantum investing.

More Positive Signs

While these initial quantum investment forecasts should raise some alarm, there are signs the industry may be making a comeback. For example, policy makers have been very aggressive in advocating for and funding quantum initiatives. Germany announced a €3 billion — or about $3 billion US — program for a universal quantum computer, the UK is very active with its £2.5 billion quantum initiative and a multibillion pound semiconductor program (some of which will go to quantum). Scandinavia continues to be a global leader in quantum with several projects, including the Danish government’s billion-kroner quantum investment and a Dutch €15 million fund to support quantum startups.

This government money will eventually work itself into each of those countries’ quantum ecosystems, inspiring start-ups and university drop-offs, encouraging start-ups to seek additional funding and possibly pushing already-funded quantum companies into follow-on rounds of funding.

Other positive signs include propping up stock markets and indications that some central banks are leaning toward easing rate hikes.

While unofficial, The Quantum Insider analysts track dozens of quantum companies looking to raise money and are exploring merger and acquisition options. This could lead to a strong end to 2023 and maybe even an exit from some of the Q1 and Q2 sluggishness.

Quantum Insider will be releasing its Q2 report soon, which will explore quarterly results in detail.