Unlocking Europe's Quantum Potential: Why The Startup Funding Model Is Critical

The European Union (EU) stands on the leading edge of the quantum industry. This is one of the most promising industries of the future, with a projected market size of $106 billion by 2040. Yet its current global leadership position is under significant threat.

As detailed by the European Quantum Industry Consortium (QuIC), the continued development and future competitiveness of the EU's quantum startups and scaleups are being imperiled by regulatory hurdles inherent in the financial models required by European funding institutions. These weaknesses jeopardize the unlocking of Europe's full quantum potential at a critical point in its evolution.

Recognizing The Strategic Importance Of Quantum Technologies

Quantum technology is not just a buzzword—these technologies are strategic assets with value acknowledged by EU institutions. The success of the EU startups and scaleups developing these assets—which are likely to become Europe's future tech giants—relies heavily upon their access to capital. Adequate financial resources are the lifeblood that transforms scientific leadership into commercially viable industrial prowess.

While the EU and its member states have established funding mechanisms to support local quantum companies, their implementation falls short of their intended objectives. This outcome is behind the troubling trend that sees the EU starting to lag behind other global players, deploying insufficient capital to keep up with the rapid growth of competitors in the quantum technology sector.

In 2022 alone, EU startups were valued at just under 30% of their U.S. counterparts, while funds deployed in EU startups amounted to just 50% of those invested in American companies. This places EU quantum companies at a significant disadvantage compared to their global competitors in the U.S., Canada, the U.K. and China.

The pressure to address this situation is further magnified by the economic downturn affecting the valuations of emerging tech companies. Venture capital funding for startups has plummeted by over half in the past year, putting EU quantum scaleups at risk of an "extinction event." These scaleups hold invaluable patents on groundbreaking intellectual property yet struggle to secure the necessary funding to thrive.

The Reluctance To Lead And The Need For External Investors

One of the primary drivers behind this negative trend is the reluctance of EU institutions to take on lead investor roles. This forces EU startups to seek external lead investors for large financing rounds. Numerous member companies of the QuIC have faced this obstacle when attempting to secure external lead investors for funding rounds that range from tens to hundreds of millions of euros. Given the current scarcity of private venture capital, finding external lead investors becomes an almost insurmountable challenge for scaleups.

The assumption underlying current regulations, where pre-approved EU funding for scaleups cannot be deployed without an external lead investor, is misguided. Large institutions such as the European Investment Bank (EIB) possess all the resources and knowledge required to validate EU scaleups when these have already passed the stringent validation processes of research and innovation programs like Horizon Europe.

Check out the full article by Sam Mugel on Forbes here.