Scoring your quantum tech deal pipeline
A data driven approach to sourcing deals part II
Dear Quantum fans,
I was speaking with a buddy in the quantum tech industry this week and he said it’s still really hard to explain QC to clients, hence few of them move on it. A message I hear (and experience myself) often.
It made me wonder why do we all have this urge to explain QC to our potential customers (guilty myself!)? Did folks back in the 60’s start by explaining to clients that they now have these things called CPU that can hold a negative/positive charge and spit out 10111, which allows you to compute something that will be super cool?
I don’t think so. I mean I wasn’t there but I really don’t think they did. They sold a solution to a problem. So maybe we can make efforts to do the same and keep the spooky QC part for dessert?
I have previously reported how most investors that I speak to still make investment decisions based on their experience and gut - and some sort of usually outdated due diligence.
What they typically will do looks as follows
Sourcing: Except for a handful of highly dedicated funds, sourcing in Quantum Tech is haphazard and rooted in the principle of “I know someone who knows someone”. With conferences unlikely to return any time soon, investors are reduced to their network and that elusive friend who knows important people in Quantum. You have a dozen or so conversations, they all are wonderful, you’re pumped and ready to go looking at your list of 30 - 40 companies that you’ve come across.
Assessing: Still excited from all the great conversations you’ve had you take a closer look at the technology and the products. Promises are being made, MVPs and launch customers dangled in front of you, you ask a bunch of tough questions and say to yourself “with my network I can get them bank 1 and bank 2 as customers”.
Due diligence: Comps? Hmm… Valuation? Pfff… Track record? Nope. But it’s a great team, they went to MIT and they have this guy who worked in supercomputing for 30 years who’s now helping them conquer the market. Gotta take risks in life, I am sure it will be fine.
This is how the investment process, with little variation, currently happens. Some investors have a PhD in physics amongst their partners, which only reinforces the fallacy rather than actually create data and benchmarks.
This approach is especially dangerous within Quantum Tech.
There are several reasons for this:
Scientifically complex: Minute differences in modality, algorithmic approach or architecture have huge significance with respects to potential target markets or timeline. There are plenty of scientific teams with amazing credentials and skills. Putting together a few lines of quantum code, or, even, a POC for one or two qubits, is becoming increasingly accessible for many of them. But actually building a product and solutions platform is an entirely different game. Understanding which teams can get there, based on their science, is the crucial first step.
Uncertain ROI timeline: Quantum is here today but its commercial application is still somewhat out in the future. With funds needing to deliver a return within a given timeframe, it is all the more important to have a structured approach to understanding horizons rather than betting on “your winning jockey”
Insufficient track record: This is our first time round the block, there are no comps, best practices, benchmarks publically available. You need to create those in order to be able to work with them.
Yet, most investors lack the data and the tools for a better approach that allows to deliver on two critical aspects
Identifying the right fit for your portfolio
Establishing correlation between your deal sourcing and future returns
A better approach to investing in Quantum Tech is available.
Data driven sourcing
Even outside the Quantum Tech space a data driven approach to sourcing is still rare for the simple reason that data is hard. Within Quantum Tech, there is no data yet. No investor has the track record necessary to be data driven, no PitchBook or Crunchbase has reliable data. And Gartner, well they have a bunch of analysts that spend a small share of their time writing reports on Quantum.
My company, Interference Advisors, has been collecting data on the Quantum Tech space since 2018. In our database we have the most exhaustive and accurate lists of:
All categorized by QIS application, hardware vs software and region. Tagged with metadata on size, maturity, stage, funding, customers, use cases, and much more.
Establishing a tech & business baseline across categories
We strive to keep this data as accurate, exhaustive and up to date as possible. Our data does not come from “our network” but is produced through a systematic, technical approach to data scraping and collection.
And while this process surely is not yet perfect, it is a lot better than opinion and rolodex:
It creates a tech baseline that compares and contrasts entities and concepts based on reliable, trusted data across categories and segments
It creates a business baseline by comparing verifiable use cases, pilot projects, partners and customers
Which enables us to produce company specific analysis rooted in data.
This is the best benchmark for decision making.
Stringent scoring to remove bias
The next step in our approach is to leverage the above data to produce insights. Not out of our experience and skills but out of scored frameworks. We developed frameworks to score
…of quantum tech firms across QIS applications, modalities and stages. Each framework is anchored by dozens of questions, scored 0 - 10, producing an overall score per assessment.
We can now compare apples to apples and get a reliable, quick understanding of how firms compare, their maturity across various indicators and potential opportunities to optimize and grow.
Final decision making
To be clear, we are not robots and we do not advocate for programmatic investing. My message is, that in an immature, spooky field like Quantum Tech, it is our job create the data that we need to avoid bias and investment heuristics.
Executives, entrepreneurs and investors who proactively adopt a data driven mindset will have a competitive edge that grows over time.
For executives in Quantum (click for free handbook) - this means you should communicate transparently and honestly with the larger Quantum Tech community to enable us all to gain a better understanding. It’s a win-win for everybody down the road, stop being so mysterious.
For entrepreneurs in Quantum (click for free handbook) - this means you should be mindful of what smart investors need to make good decisions and proactively work on gathering that information and filling the gaps that you might have. One of the worst things any startup can have is a bad investor.
For investors interested in Quantum (click for free handbook) - this means we now have better tools available to be successful. Use them.
This week we added the following to our Quantum Tech database:
7 quantum tech companies
0 quantum institutes
3 quantum researchers
2 quantum investors
2 closed quantum deals
5 quantum fundraising deals
Subscribers to our paid weekly investor digest can review a summary of the details.
I am not sure if this if a joke or SciFi but it definitely is real and scares the 💩 out of me.
Quantum Intelligence is a platform based on Quantum Computing that offers Quantum Token Intelligence, a Quantum Intelligence Junction and a global, secure system with quantum intelligence (Yes, all 3. Triple quantum intelligence, if you will).
It is based on a blockchain effort to distribute academic resources and funding equally and fairly within quantum. And also to issue the QIT (Quantum Intelligence Token) so that everybody can partake in Quantum. For this purpose, they are doing a initial coin offering (ICO) of the QIT.
Disclaimer: I do not know this company or people behind it, I am sure they are wonderful - this is nothing but my emotional, irrational reaction conveyed by Mr. Bean.
At Interference Advisors we bring together Quantum Tech and investors through data, insights and market research.
Companies looking for funding or investors looking for deal flow email me. 10,000+ a month rely on our data, insights and reports.
Learn about the ROI of working with us.
… and enjoy our Weekly Quantum World Detangled Episode 3 with Denise Ruffner and Tommaso Demarie.