Paris-based, quantum technologies-focused venture capital firm Quantonation Ventures has hit a €70 million ($75.3 million) first close for its €200 million ($215 million) Fund II, it announced on Wednesday.
It is one of the earliest known venture capital funds dedicated to quantum technology and deep physics and remains one of the very few investors in the world to invest in this rapidly emerging space.
The VC has raised from a range of limited partners (LPs) across sovereign wealth funds, fund-of-funds, corporates and high-networth individuals globally.
Roughly all of its LPs from its €91 million ($98 million) Fund I (2021 vintage) re-upped, with several others raising their commitments for the second fund, shared Quantonation Ventures’s partner, Olivier Tonneau in an interview with DealStreetAsia.
Its LPs include Fonds National d’Amorçage 2, managed by Bpifrance on behalf of the French State; US insurer Pacific Life; European chemicals giant BASF; Temasek-backed venture capital firm Vertex Holdings; and Bradley M Bloom, the co-founder and former managing director of Berkshire Partners.
Tonneau added that it is in talks to finalise two anchor LPs from Japan and Singapore and is on track to fully close the fund by the end of 2024.
Why quantum technologies?
The field of quantum mechanics, which involves the study of atoms and sub-atomic particles, has remained largely theoretical even though its research origins can be traced to as far back as 1900.
But as the world’s demands for data and computing power keep growing, quantum technology is increasingly viewed as a powerful solution for governments and corporates to unlock new speed, efficiency and insights for their businesses and operations.
The industry applications can be wide. Quantum mechanics can be used to generate scenario and computational simulations for drug discovery by pharmaceutical or chemical giants, or in fleet dynamics analysis by aeronautical or space firms.
It can also be used for optimisation purposes, whether by finance professionals for portfolio construction, or logistics firms to generate better optimisation of deliveries. Last of all, quantum can also be used to accelerate machine learning.
According to Tonneau, the quantum tech industry doesn’t face a lack of co-investors, even though it is still a highly nascent sector. Most of the firm’s co-investors are early-stage deeptech VCs and institutional investors like Temasek Holdings, which last led the €100 million Series B round of PASQAL, one of Quantonation’s portfolio firms.
“It’s been easy to find co-investors. It has a holy grail effect because quantum has the potential to create large companies, and many are betting that one of these quantum computer companies will become the next Nvidia in the news,” said Tonneau via video call from Paris.
“The global quantum computing market is about $1 billion right now so it’s still small, but this will grow significantly over time,” he added.
Fund strategy
Quantonation focuses on early-stage startups in the pre-seed to Series B stages, writing cheques from a few hundred thousand to $2 million with room for follow-on capital. It aims to accumulate about 10-15% in its portfolio firms.
The VC fund will also focus on deploying into more Asian startups for this new fund, especially in Singapore, Japan, South Korea, and Australia, which have existing quantum research institutions and ecosystems ready to support deal flows.
It has invested in one APAC company so far—a spinoff from the University of New South Wales, Sydney called Diraq which uses silicon technology to build quantum processors.
Tonneau added that its Fund II will also focus further on quantum startups focused on software, having invested mostly in hardware startups for its Fund I.
The VC has invested in 27 companies globally including PASQAL, Nord Quantique, Multiverse, Qubit Pharmaceuticals, WeLinQ and QphoX. Many of them are spinoffs from major universities like MIT, Ecole Polytechnique, Institut d’Optique, Oxford University, Waterloo University, University of Sherbrooke and others.
Despite the perceived nascency of the quantum industry, most of Quantonation’s startups are already monetising. According to Tonneau, about 50% of its portfolio firms are already generating revenues above $2 million even though the fund was conceived at the end of 2018.
It has also delivered two exits to-date—Canada’s Quantum Benchmark was acquired by Keysight Technologies in 2021, while PASQAL and Q&Co conducted a merger in 2022. Both were Quantonation startups.
“I expect to see more consolidation in the quantum industry because many see this as a way to accelerate their technological or product roadmap further… We may see (quantum) hardware firms looking to acquire software startups to adopt a more full-stack approach. At the same time, we’re also seeing buyer interest from industrial players in the market,” said Tonneau.
There are a few well-known quantum startups in the public market such as Nasdaq-listed Rigetti Computing and NYSE-listed D-Wave Systems.