Europe’s two largest quantum computing firms announced plans to go public on the US stock market just as the European Commission was finalising urgent plans to stop deep tech firms selling to overseas investors.
The launch of hurried bids by Finland’s IQM and France’s Pasqal to raise the money they need to make quicker progress in developing viable quantum computer systems coincided with the start of another urgent programme, by the US Defence Advanced Research Project Agency (Darpa).
The programme pledged to prove an alternative quantum computing architecture was feasible before leading quantum firms wasted any more time and money on current dominant designs, which it said would fail.
Quantum computing firms need hundreds of millions of euros from investors to develop technology that is still so advanced that most expect it will be 2030 with hundreds of millions more spent before they deliver systems capable of meeting expectations.
The situation is characteristic of so-called deep tech firms that Europe is now striving urgently to help, in sectors such as artificial intelligence (AI), biotech, robotics and space.
The upfront cost of research and development is high for deep tech firms trying to engineer futuristic products from recent scientific breakthroughs, and the time they need to deliver a commercial product is often decades long.
As a consequence, the risk that it will never deliver at all is great enough that in Europe, at least, investors have been reluctant to put up funding for all but their early stages of growth.
EU rescue bid
As IQM and Pasqal hatched plans to raise late-stage investment in the US, European officials entered negotiations with financiers over the management of a €3bn “ScaleUp Europe” fund they raised in a hurry to stop deep tech firms turning to foreign backers.
The “urgent” scheme would try to prevent foreign investors from reaping the financial returns from late-stage investment in firms that European investors had helped grow in their early stages, and to stop them wresting control of European technology champions. It would make sure “their success becomes Europe’s success”, said the European Union’s (EU’s) innovation commissioner, Ekaterina Zaharieva.
European financiers and quantum computing executives who spoke with Computer Weekly expressed a mix of despair, frustration and equanimity at Europe’s loss on the one hand, and at Pasqal and IQM’s gain.
Pasqal and IQM, both declaring they needed to raise money to grow and innovate faster, arranged a form of listing that has been both common and controversial among North American quantum computing firms: a merger with a shell company called a Special Purpose Acquisition Vehicle (Spac), which US investors funded, set up, and listed on the Nasdaq for the sole purpose of merging with a deep tech firm that needed growth capital and a stock exchange listing fast.
Last summer, as the commission and investors began formulating plans for ScaleUp Europe, IQM co-founder Juha Vartiainen warned in Computer Weekly that the commission needed to move fast to get money to quantum firms.
IQM and others said they were forced to look beyond Europe for money. Two-thirds of the world’s global scaleups are in the US, and not a 10th in Europe, according to the commission’s own findings. US investors account for half the world share of venture capital, China almost as much, and Europe but 5%.
Pasqal
Neither Pasqal nor IQM would say they were going to the US to get money they could not raise in Europe. Pasqal CEO Wasiq Bokhari said in a written statement that it has a strategy to invest abroad because the quantum computing market is international.
All Pasqal’s growth capital to date has come from foreign investors, according to Computer Weekly analysis. Besides about €3.5m it got in EU startup grant funding, and €30m from French state fund Bpifrance and quantum startup fund Quantonation in 2021, the €265m it raised in the past three years came from Saudi Arabia, Singapore and South Korea, primarily from sovereign wealth funds on condition that Pasqal shares its technology.
The venture arm of Saudi state oil firm Aramco became one of Pasqal’s primary investors so the country could acquire quantum computing technology and fulfil a national strategy to become a global leader in deep tech.
Wasiq said Pasqal saw in the US an opportunity to raise money on the world’s largest public capital market and to sell computers in the world’s largest market for quantum computing, so that it could become a “truly global company”.
He was not prepared to say how its dependence on foreign backers reflected on European late-stage capital. But both Pasqal and IQM seek dual listings, in Paris and Helsinki, respectively. Wasiq said this was to retain its French roots. Its core hardware R&D and 80% of staff would remain in France. It was raising US money to serve the needs of French and EU industry.
IQM
IQM chief executive Jan Goetz said it sought dual listing so it could remain eligible for funding from institutional European investors whose rules forbid them investing in US stocks. The €400m raised since 2022 came from consortiums formed mostly by nearly two-dozen EU investors, according to Computer Weekly analysis.
“Has it handicapped IQM, the provision of late-stage capital in Europe? Ultimately, it worked out,” said Goetz. “We were able to raise larger rounds. You find your own ways to do it in Europe. It is possible. Definitely not easy, but possible.”
IQM did it by syndicating many investors on small tickets, shouldering the extra work it took to manage relations with them all.
The lack of late-stage capital is a challenge in Europe, he said, but the EU was beginning to fix that, as evidenced by ScaleUp Europe. The fund aims to make its first investments in the summer, EU innovation commissioner Zaharieva said in January. It will coincide with IQM and Pasqal’s flotations.
IQM did not wait for ScaleUp Europe because money is not its primary motive for listing in the US, said Goetz. It was already well capitalised. It had strong support from European institutions and investors. US money would complement that. A public listing would also give IQM visibility. Public scrutiny would increase trust among potential customers.
Consolidation
Both firms told investors that they also sought US listings to get financial leverage to acquire other quantum computing firms in preparation for expected industry consolidation. Goetz said a US listing would put IQM in a position of strength as it prepared for coming consolidation.
US quantum computing firms such as IonQ have already used a public listing to raise hundreds of millions of dollars more to consolidate the sector, said Olivier Tonneau, a partner at Quantonation, which, as the world’s first quantum startup fund, was Pasqal’s first investor alongside the French state.
IonQ started an acquisition spree last year, using its stock as currency after its share price rose dramatically, doing eight deals including a $1.1bn takeover of UK’s Oxford Ionics, and $1.8bn on semiconductor firm SkyWater Technology.
“We expect a wave of consolidation,” said Tonneau. “It is the mature companies that will be the ones consolidating. We have seen in the last five years about 1,000 companies in that space. Some make very interesting technology, but not enough to build a big company on their own.”
Europe’s loss
European quantum firms had no choice but to go to the US to raise capital. Others had been approached by Spacs to do similar deals, he said. There was no greater source of capital than public US markets – but it was a loss for Europe.
“Why create value for US investors when you could have the same value for European ones, if those companies are financed by European investors, which creates value in Europe for European investors,” he said.
Others in Europe shared his frustration. “Europe is once again taking on early stage risk, and funding basic R&D, only to watch the commercial value and liquidity be harvested by US public markets,” said Ion Hauer, principal at early stage deep tech venture capital firm Apex Partners.
“The fact that Europe’s two premier, unicorn-status quantum hardware champions had to use US blank-cheque companies to get the money they need to scale is an indictment of late-stage private capital in Europe,” he said.
“European policy makers and institutional limited partners are incapable of funding their own deep tech champions through the finish line. The money to build fabrication facilities and scale qubits simply isn’t sitting in European private equity.”
Fixing the systemic problems that fragment European capital and deter pension funds, insurance firms and banks from investing in scaleups is high on the agenda of the European Commission. But with entrenched national differences and legal barriers across the union, it may take years. The ScaleUp Europe fund aims to raise €5bn to make a start towards building stop-gap capital while the politics of capital markets reform plays out.
“This is a failure of European funding providers of one the most critically important technologies of our generation,” said Sebastian Weidt, CEO of Anglo-German quantum computing firm Universal Quantum.
Quantum winter
Weidt said other European quantum firms were looking to do Spac mergers if IQM’s share price holds up after its listing. A wave of deep tech Spac mergers that brought public listings for US QC firms IonQ and Rigetti, and Canada’s D-Wave, had earned a brutal reaction from an equity market impatient for returns from companies developing long-cycle technology, and years of depressed share prices. All three rebounded last year.
Retail investors have become excited in quantum and driven high valuations for IQM and Pasqal, he added. It was easy money for firms that otherwise faced a lack of capital in private markets that made it hard to get funding.
“If you can stay private, especially for a long-term technology like this one, it comes with more benefits than being public,” said Weidt. “You get investors who are more closely aligned, who will work with you, who understand the risks and advantages a bit better and can carry you through to difficult times.
“If the public markets decide you’re no longer sexy, you’re no longer making short-term returns, they may lose faith and [then] you have no way of getting any more money.”
Another wave of Spacs will intensify media attention on European quantum firms, and if their share prices all underperform, it will undermine investor confidence in quantum technology “at precisely the moment when companies need sustained, patient capital to do the hard work of scaling”, he said.
Alessandro Curioni, head of IBM Research Europe, said he was so convinced that quantum computing firms would turn their prototypes into commercially viable systems within the decade, that the “quantum winter” some fear – where engineering problems slow progress, markets lose confidence and firms lose access to the capital they need to carry on – will never happen.