# Investment Thesis on the Future of Quantum Computing

### Author: Shuyej Uddin (Venture Capital Fellow at Sutton Capital)

Quantum Computers are the future of technology. From calculating calculations much faster, operating a calculation that would take 10,000 years to no more than 4 minutes, the question is WHY are quantum computers important, and WHICH industries can benefit from quantum computers and HOW. We look into answering these three questions, in this article. The first section seeks to understand WHY quantum computers are important. Then, the latter section is devoted to understanding WHICH industries can benefit and HOW, from Quantum Computers, breaking things down to four categories: Machine Learning/ Big Data, Monte Carlo Simulation, Optimisation, Material Science. Since the paper is designed to provide an investment overview, for a more detailed technical overview, we recommend having a read of the article by Nature.

Before delivering into answering the questions, we introduce an important rationale for Google’s adoption and motivation to build a Quantum Computer. Harmut Nevan, the founder of Google’s Quantum Lab suggested replacing boolean logic of 0’s and 1’s (much explained later) to quantum law, will increase the number of operations. More to the point, Dorit Aharanov, a professor of Computer Science at Hebrew university suggested we can find n number of paths, an exponential number of paths, all at once. What that means is we find more solutions to given problems. Finding quicker solutions has motivated Fortune 1000 companies and start ups to build early applications on quantum computers to solve real world problems. In the past, technical knowledge and cost made building quantum computers difficult, but as time passes the burdens that existed in previous generations are becoming much weaker, that is speeding the emergence of quantum computers to everyday reality. What that means, is we need to investigate its impact. So, therefore we will look into answering the two questions and studying the impact of quantum computers in this thesis.

Figure 1: Google’s CEO Sundar Pichai photographed, near their Quantum Computers

**What is a Quantum Computer? Why are they important?**

Briefly, we provide details on what a Quantum Computer is, in order for readers to conceptualise much of the discussion in this report. Unlike standard computers which understand boolean logic of 0’s and 1’s, a Quantum Computer is defined as a computer that understands quantum bits (or qubits). The difference between boolean logic and qubits, boolean logic takes values only 0 or 1, but qubits take values between 0 and 1, which include 0.5, as an example. This means Quantum Computers will solve problems based on probability, rather than certainty. Given the definition of Quantum Computers, therefore, by how Quantum Computers (or supercomputers) are defined, they help solve complex problems for which standard computers cannot, and at a faster rate. To elaborate, changing the state of one qubit changes the state of another, which exploits entanglement, which allows us to solve problems quicker. Since, Quantum Computers will help solve real world problems, which signifies their importance, we next analyse what the current market scope is in Quantum Computers, and whether markets are realising that the growing importance of Quantum Computers should increase startup’s valuation of those who are operating in the industry. Given we will next understand the markets, this will then help us answer the next two main questions; which industries will benefit from Quantum Computers and How. Please, continue reading to learn.

**Market Overview**

We consider the Quantum Computing Market. We mentioned in the introduction that Quantum Computing looks to emerge in markets ever more closely than before. In fact, Goldman Sachs predicts we are less than 5 years, atleast, from finding the use of Quantum Computing in firm decision making. In another article, which also agrees that we are less than 5 years away, at least from finding the use of Quantum Computers in decision making, but the benefits will not be substantial, from using Quantum Computers, then at least 10 years into the use of the supercomputers. Some of the reasons for the limitation in using the super computer, is the fact that they use qubits for which there can be many, leading to inaccurate results and errors. Nevertheless, Microsoft is developing ways to minimise errors which will be touched on later, but for now we need to know errors are minimal due to the existence of quantum error correction schemes. If you want to have a read of more limitations, have ahead of the report written by Science. The article is recommended if one wants to understand more advanced technical limitations of Quantum Technology, which will note be covered. Next, despite the challenges, companies such as Google and IBM are looking into ensuring Quantum Computers are useful for businesses, and maximising the benefits of using the super computers.

Even though we mentioned that IBM and Google are seeking to work around the use of Quantum Computers, ensuring businesses can benefit from their use, we next seek to understand how IBM, Google and Microsoft have been utilising the use of Quantum Computers. By utilizing the use of Quantum Computers we mean seeking measures that businesses can benefit from their use rather than using Quantum Computers to calculate mathematical operations, which current technology advances in Quantum Computing accommodate for now. More to the point, we begin with analysing IBM’s strategy for promoting the use of Quantum Computers. We know that Quantum Computers have been around since 1980, and since 2019, their use has increased, but IBM have designed a road-map to fasten the delivery of the supercomputers to the market. They hope to build a 1000 cubit computer by 2023, which is in preparation to compete with Google who are much more ahead in building a Quantum Computer than IBM. Moreover, this is a big milestone to what the super computers can achieve in the near future, which include breaking internet encryption schemes.

Likewise, Microsoft’s strategy for promoting the use of Quantum Computers is as follows. We mentioned earlier, Quantum Computers are error prone, and so Microsoft are creating qubits with the use of Majorana particles which are less ‘error prone’. To further encourage the advancement of Quantum Computers, Microsoft announced the Azure Quantum which is designed to encourage application developers and researchers to collaborate within the platform to accelerate the use of Quantum Computers. So, the key thing to note from this paragraph is that we mentioned about benefits of Quantum Computers happening in at least a decade from now, earlier on, and that the computers are prone to errors for now, however we learn from Microsoft they seem to be the leader in ensuring the errors are reduced from the computer calculation and are speeding the process of markets using Quantum Computers, but IBM and Google seem to also speed the process of markets adopting Quantum Computers. Overall, the limitations of Quantum Computers are insignificant when compared to what IBM, Google and Micorosft are undergoing for market adoption of the supercomputers, meaning we should see businesses using the computers to solve complex computational problems, much closer to the future than what the article suggested. Therefore, we next investigate the current market, and market potential.

We begin with the global market of quantum computing. It is estimated the market is to reach $948.82 million by 2025 in global value, with other figures suggesting from 2021 to 2025 a growth in CAGR of 30.2%. In fact, market revenue is expected to generate $1765 million by 2026, from the current figure of $472 million in 2021. The drivers of the figure are the economic and military advantages of Quantum Computing. According to Analytics Insight, the top 10 market leaders, in chronological order, are the United States (US), Canada, Germany, France, United Kingdom(UK), Netherlands, Russia, China, South Korea, and Japan. It is clear that we will focus on recent ventures by the US, China, Germany, UK, and France. In figure 2, we report by 2027, Germany, UK and France, within Europe, should have similar market value.

Figure 2: Market value of Top European Quantum Computing Markets

Breaking down the market segments, in analysing the current Quantum Markets, we begin with the US. As of 2018, research and development for Quantum Technology was made a priority through the National Quantum Innovative Act, with $1.2 billion spent, and by 2023 $625 million will be invested in five research centres innovating within Quantum information science. Likewise, China announced in 2017, the Quantum Experiments at Space Scale program, to advance Quantum communication. Moreover, in Europe, particularly US and Germany, who are leading the way, in 2013 the UK announced its own quantum strategy investing $370 million over five years, and in 2019 announced a further £153 million. As of 2020, they constructed the National Quantum Computing Centre (NQCC) - a 10-year investment, to accelerate the use of Quantum Computers. Much of the reason for the investment by the UK government is that Quantum Technology can build sectors-systems-components, for which estimated figures are reported in figure 3. Germany, allocated €650 million to its quantum technology program, and in 2019 announced a €2 billion innovation program for quantum technology. France, too, has introduced an investment fund - Quantonation - to help start up’s who are seeking to emerge in the Quantum Technology sector. All of these investments show there is more research, funds, and investments being made, laws such as the NQI Act in the US mentioned earlier, to even creating educational hubs such as the NQCC, to encourage the adoption of Quantum Computers at an increasing rate. Measures taken by both governments, and major tech companies - Google, IBM and Microsoft, all suggest the market has strong potential to grow. Note that figure 4 summarises the key themes. Since, the market has strong potential to grow, we seek to understand recent IPO’s to help us understand the market better.

Figure 3: Sectors, Systems and Components that can benefit from Quantum Computers

Figure 4: Summary of the top themes driving Quantum Computing

Source: Quantum Computing Market

**Recent IPOs**

We begin with the most talked about IPO. The most talked about IPO is IonQ’s SPAC with dMY Technology Group three. A SPAC (Special Purpose Acquisition Company) is a non-traditional IPO, where IonQ merges with dMY Technology Group three who are a private company looking to go public, and the latter company go public with the money raised by the IonQ. The deal would create an entity worth $2 billion. Despite the deal raising the value of the entity, we need to have an understanding of the company's activity and what it means for the super computers. IonQ has founders who have produced extensive research in quantum physics, which has supported the firm in using trapped ion qubits which have fully connected qubits. So, this deal is important as it can minimise the errors made by calculations from Quantum Computers, a major challenge to the market of Quantum Computers mentioned earlier. Another deal worth mentioning is Arqit’s SPAC with Centricus Acquisition Corp, which will value the firm at $1 billion. The company specialises in supporting encryption, which will be further advanced by launching two satellites following the merge. Satellites have many advantages, as written in the last article on Space Technology. What this means is that the use of quantum computers can better improve the security of the management of data. The recent SPACs suggest markets and businesses will anticipate adoption of Quantum Computers for decision making much faster than initially predicted.

However, despite the most recent IPOs, the industry has quite limited IPO’s happening thus far. It was only in 2019, the industry started to grow, which meant there has been more venture funding as well as mergers, than IPO’s. We begin to look at the companies who have raised venture funding, and what this means for the industry overall. First, Rigetti Computing has raised over $71 million in venture funding. The company develops a cloud platform, Forest, that allows developers to write Quantum algorithms. Second, Xanadu Quantum Technologies Inc raised $100 million. The company develops open source software for quantum machine learning. Third, PsiQuantum Corp raised $200 million. The company uses photos as qubits. Fourth, River Flow raised $20 million in venture funding. The company is focused on building an operating system for quantum computers. Overall, the venture funding has important implications for Quantum Computers. Rigetti Computing can ensure developers produce algorithms for faster and efficient computation, Xanadu Inc can ensure the softwares is there for faster machine learning calculations, PsiQuantum Corp can ensure faster calculation, and having the operating system for calculations is important as produced by River Flow. What this means is that the companies raising funds will continue to grow, but are building the groundwork for revolutionary products. Critics may say between 2019 to 2020, venture deals increased by 46%, while total amount raised fell by 12%. However, the figure further suggests there is more activity happening within the industry to produce revolutionary products. With more venture funding, and increased deals, there is much more weight to the point mentioned earlier that we are much more likely to witness the adoption of supercomputers much quicker than anticipated, despite limited IPO activity. Therefore, we next motivate which industries can benefit from quantum computers, following growth in Quantum Computing firms, and tech giants - Google, IBM and Microsoft's investment in Quantum Computers.

**Which Industries can benefit from Quantum Computers and HOW? **

In the last few sections, we spoke about what are Quantum Computers, and why they are important, particularly focusing on how they help solve problems, and how markets are realising their potential. We then validated whether these growth potentials seem viable by focusing on IPO’s and venture funding which proved super computers will be adopted in other markets or industries, much quicker than anticipated. So, next we seek to understand which industries can benefit from quantum computers and how? Therefore, much of the next few sections will be focused on answering the question mentioned in the last sentence.

In order to study which industries can benefit from Quantum Computing we break things down to four categories, using the help of the source: AI multiple as presented in figure 5. These four categories form the groundwork which explain how industries can benefit from Quantum Computing. We focus on Machine Learning/Big Data, Monte Carlo Simulation, Optimisation, and Material Science. However, much of our focus will be on Machine Learning/Big Data, Monte Carlo Simulation and Optimisation. The reason being is that service sectors have grown due to Quantum Computers benefiting industries through the three factors mentioned. In other words, due to advancement caused by Quantum Computers, in Machine Learning/Big Data, Simulation and Optimisation, service sector industries particularly in Finance, have grown. So, we need to investigate and understand their growth from Quantum Computers to overall understand how industries can benefit, and are benefitting, from the use of Quantum Computers.

Figure 5: Factors which categorise the HOW Quantum Computing can benefit industries

**Quantum Computing - Machine Learning/Big data**

Machine Learning/Big data relates to algorithms used to make decisions, and data processing. Quantum Computing can support data processing, and speed of transactions. Quantum Computing can explore more possibilities from data, important for machine learning, overall improving the application of machine learning for decision making. The telecommunication Industry can benefit from advanced algorithms supported by Quantum Computers. The Telecommunication Industry relies on cryptography which relates to encryption. As encryption improves so should the telecommunication industry become more efficient. What this means is data will be more secure, information data, which will improve the flow of information through telecommunication. Due to the benefits mentioned, the Financial Industry can benefit from trade deals and data processing. One way the Financial Industry can benefit, by being more detailed with our point, is in the context of Blockchain technology. Blockchain technology enables the use of cryptocurrency. Cryptocurrency is a form of exchange, like money, but one that uses encryption to verify financial transaction. This means as encryption improves, telecommunications will benefit, so will blockchain technology leading to more secure financial transactions. Despite, 25% of Bitcoins being at risk of quantum attacks, Bitcoin being the most popular cryptocurrency, faster calculations put Bitcoin transactions at greater risk of attacks. Nevertheless, there are algorithms that can adhere to safer Bitcoin, or cryptocurrency, transactions. As there are more research, measures can be taken to support cryptocurrency transactions, and encourage the use of Quantum Computers for crypto currency transactions. This is much agreed in the paper written by Deloitte, which one should read to learn more of the impact of Quantum Computers on Cryptocurrencies.

We continue to build on the impact of Quantum Computers in Machine Learning/ Big Data. We continue to a new paragraph, to make the Bitcoin point, mentioned earlier more distinct, as it is a key takeaway topic discussed earlier. Next, The Electrical Industry can better understand how smart manufacturing systems be used more efficiently, and find ways additional applications can be developed to support current systems. Through advancement in big data, electrical companies can store more data on Quantum Computer, to help improve customer retention. The IT Industry will have to adapt to the advancement in storing large data sets, historical data, and conducting complex calculations. So, there will be more digital trends in advancement of IT to support Quantum Computers. The Clinical Research Industry can benefit from Quantum Computers through the detection, analysis, integration and diagnosis of separate data sets. This is an important advancement in the field of research in using appropriate data to conduct effective research to uncover new discoveries.

**Quantum Computing - Monte Carlo Simulation**

Monte Carlo Simulation relates to n number of calculations to find optimal solutions to a problem. Monte Carlo helps users find a range of outcomes, and their possibilities. Quantum Computing can support monte carlo simulations through faster simulations, drive more outcomes with probabilities, that can help better manage risks. One industry that can improve risk management such as portfolios, is the Financial Industry. Quantum Computers to price complex derivatives, through monte carlo simulations making predictions on future market scenarios. Predictions can improve by controlling for sensitivity analysis and scenario analysis, providing more advanced algorithms, helping provide accurate pricing estimates, and predictions, to ensure better management of risk related to derivative prices to protect portfolio risk. Standard computers can compute monte carlo simulations, but the limitations are speed, operational inefficiency, and costs. More to the point is that Quantum Machines are better used for complex calculations, such as complex mathematical derivative pricing operations, by storing large numbers of variables more systematically which means better operational efficiency for complex calculations. As the Finance Industry benefits from better pricing of derivatives, to even credit risk management, economies and governments can be more stable from a consumer debt crisis that can influence consumption, the most significant component of aggregate demand for which influences economic growth. The Agricultural Industry can benefit as simulations improve the manufacture of fertiliser which is used to grow food, meaning simulations can help improve what is needed to improve the effectiveness of fertilisers. The Pharmaceutical Industry can benefit from monte carlo simulation to simulate the effects of new drugs, or understand different chemical elements where the latter - understanding different chemical elements, can be used in Healthcare, Pharmacy or even Defence. For a more graphical view of how faster simulations are carried on Quantum Computers than standard computers, refer to figure 6.

Figure 6: Graphical illustration of the speed of simulation of a classical computer compared to a Quantum Computer

**Quantum Computing - Optimisation**

Part of monte carlo simulation is finding optimal solutions to a problem, as mentioned with the example of complex mathematical calculations. Optimisation problems include quadratic constraint problems, integer programming problems, constraint programming problems, smooth non linear optimisation problems, non smooth optimisation problems. Quantum Computers develop algorithms that cannot be constructed on standard computers which make the supercomputers much more useful to solve complex optimization problems. One industry utilising Quantum Computers to solve problems is the space and defence industry. The space industry has issues in scheduling images taken by one satellite to maximise image quality. So, Quantum Computers can help us find the best quality images to describe space projects. The Finance Industry has benefited from better managing risks (through simulation i.e. of derivatives mentioned earlier), but optimizing trading strategy, portfolios, asset pricing and hedging. Which can mean finance companies can generate more return, from a fixed level of risk. In fact, quantum computers can provide earlier ‘warnings’ on potential losses to help investors maximise return. The Airline industry can benefit from Quantum Computers by improving flight schedules and reducing delays, reducing customer travel time, or even air fuel costs. As Quantum Computers improve the logistics within the airline industry, businesses operating within those industries can benefit operationally which will improve customer service quality, reduce costs, and improve operational efficiency which are key to driving profit, especially after the Covid impact where airline companies suffered severely due to flight cancellation; Quantum computers provide an opportunity to financially recover, at least from what we can suggest from logistical improvements.

Next, Quantum Computers can benefit the Pharmaceutical Industry. For instance, it is difficult to understand the structure of molecules, and we may be interested in optimising the power of enzymes to solve major diseases. One way to overcome such problems is using Quantum Computers to solve optimization issues. What this should lead to is advancement in pharmaceutical products, to help solve current challenges in society, and potentially develop quicker solutions to issues such as Covid-19. Much more on molecules is covered in Material Science, next.

**Quantum Computing - Material Science**

Material Science is the study of materials and how it is made. Before delving into the topic, this topic is least talked about as Quantum Computers have the least benefit in Material Science, compared to other topics. At the moment, to study materials, there are limitations due to the number of calculations. As Quantum Computers increase the number of calculations, and model calculations, the world of chemistry can benefit. This means Pharmaceutical industries or even Academia can benefit from the use of Quantum Computers to study materials, develop medicine and more. Not only the Pharmaceutical industry, but the Healthcare Industry can benefit from Quantum Computers as well. Quantum Computers can improve the modelling of molecules, protein, and energy usage; that can help biology and chemistry. As the modelling of molecules improves, scientists can better predict its behaviour leading to advancement in the Healthcare and Pharmaceutical industry. In fact, Quantum Computers will support our current understanding and help better predict mechanical properties of polymers. Even though some of the points relate to advancement in simulation, and machine learning/big data, it is somewhat linked to material science, as advancement in simulation helps better understand materials. Nevertheless, Quantum Computers will be a major driver of scientific advancement as current quantum computers work to lay the foundation to work with scientific discovery. Much of this is agreed by Freeman, who suggested the super computers will collaborate with experiments, build meaningful models to better understand theory and experimental results.

**Touching Thoughts**

We learnt that quantum computers can conduct more calculations than a standard computer which is their most crucial advantage. Markets are reacting positively, mainly, on the future of Quantum Computers. This led to the investigation of current IPOs, though limited, which should grow in the near future. With venture funding and increased venture deals we recognise Quantum Computers are likely to be adopted to markets closer than anticipated. This then led us to find how industries benefit from quantum computers, finding Finance, Material, Pharmaceutical and Medical Products industries, seeking to benefit in the medium term and long term, with the Healthcare Industry gaining in the long term, as suggested in figure 7 and discussed earlier.

Moreover, the financial services industry benefits the most as discussed earlier through machine learning/ big data, optimisation and simulation. As the finance industry is powerful, we are likely to see not only on a domestic level but on a global level too, Quantum Computing nearing the next phase of Commercialization, because Quantum Computers will help financial companies make better decisions and generate more profit. As financial companies benefit from Quantum Computers through a spillover effect other industries will quickly utilize quantum computers, which will shape our new world. Therefore, Quantum Computers, as an Investment Venture, seem highly profitable and worthwhile.

In the near future, future investment thesis should focus on material science. The reason is that it was not covered in detail in this paper, and that we found based on the information material science influencing the future of Quantum Computers the least, which meant the Material Industry benefits the least from Quantum Computers. However, figure 7 shows otherwise, and that figure 7 also considers both Global Energy and Material as one factor. This means that there is suspicion of how influential Quantum Computers can be for industries through Material Science, which one should investigate.

Figure 7: Major Industries benefiting from Quantum Computers

Great overview. Thanks for putting this together and providing so many sources.