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Quantum computing investment from VC firms declined by 50% last year, a new study has found. According to the State of Quantum 2024 report by IQM Quantum Computers, OpenOcean and Lakestar, global VC investment dropped from $2.2bn in 2022 to $1.2bn, with most of the decline coming from US funds. This fall was dwarfed, however, by government spending commitments on quantum computing amounting to $40bn over the next decade.

While venture funding temporarily cooled, our research confirms the steady momentum towards the quantum era, said OpenOceans general partner, Ekaterina Almasque. The findings signal that 2024 can become a year of growing confidence in quantum computings potential, despite still a relative lack of private capital flowing into that space. Significant use cases [are] emerging to unlock its commercial promise.

Quantum computing investment in the US tanked by approximately 80% and 17% in the Asia-Pacific region, according to the report, with small gains of 3% in the EMEA region. Waning VC interest in quantum computing could be explained by several factors, it said, beginning with inflated expectations in the technology dating back to 2022. Interviewees for the report agreed that tempered expectations were called for among investors interested in exploring quantum computing in greater depth, along with an understanding that the practical implications of quantum computing could still be years away.

Generative AI also dragged attention and funding away from quantum startups, with VC firms taking the general position that short- and medium-term returns were more likely in the former sector over the latter. Data cited in the report by investment platform Sampo also suggests quantum computing is failing to attract interest from those funds that traditionally invest in hardware startups.While there is no significant difference in average fund size between hardware and quantum computing investors, wrote Almasque in her forward for the report, there are more than [five] times as many investors in hardware than in quantum. This suggests that the quantum ecosystem, across all layers of the stack, is lacking a diverse pool of potential investors.

Despite this, however, there are signs that the broad-based decline in quantum computing investment among VC firms might be in line with declining investment in deep tech generally, with the latter also declining by 50% year on year. Several developments late in 2023 also suggested a recovery in interest among VC firms in quantum. This included a Series B fundraising round for Oxford Quantum Circuits that raised some $100m. As such, investors and vendors quoted in the report were reluctant to label the decline in quantum computing investment from VC firms as a sign that a new quantum winter has taken hold.

It is a great catchphrase, said Citi Global Insights quantum technologies lead, Tahmid Quddus Islam. Even so, investment is down across the board, so you could say we are in more of a deep tech winter.

Declining quantum computing investment levels from the private sector were also completely dwarfed by spending commitments on quantum initiatives from national governments. According to the report, some $40-$50bn has been allocated by the UK, the US, the EU and 30 other governments. 20 of these, it said, have formulated a formal coordinated policy approach to the promising technology.

The mismatch in interest between the private and public sectors in quantum computing in 2023 should not be considered surprising, argues Michael Orme, a senior analyst at GlobalData. Last year it was clear, Orme told Tech Monitor, that the private market for quantum computing startups was overcapitalized and oversupplied as far as VC firms were concerned, with few short-term prospects for commercializing the technology on the horizon. Governments, meanwhile, have different priorities.

The arrival of fully fledged fault-tolerant quantum computing willbe crucial to national security from data protection to sci-fi weaponry, and to achieving leadership in strategic science-based industries or at least staying in contention, says Orme. As such, he adds, if youre the US, China, Russia, Israel or even the UK, you must create a quantum ecosystem and stay in the vanguard.

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VC quantum computing investment crashed in 2023 - Tech Monitor