Top 3 SPAC Targets – Quantum Computing
by Nicholas Alan Clayton on 2021-12-03 at 7:53am

SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies in the cutting edge quantum computing field. We look at why they are compelling and why each could be a fit for a blank-check merger.


SPACs have thrived over the past year in providing another way for companies that would normally only be able to fully fund the development of their cutting-edge technology after being acquired by a larger peer.

Quantum computing is one of the highly advanced fields where tech giants like IBM (NYSE:IBM) Google (NASDAQ:GOOGL) have made early advances, but a small number of independent ventures have also made strides. For the independents to keep up without selling out there are few options other than getting to the public markets.

This crop of companies could in theory fund itself with ongoing private venture rounds, but given that the technology itself doesn’t appear likely to be functional still for years – let alone commercialized – that will require many rounds and lots of equity handed over to VCs before getting to the R&D finish line.

Quantum computing is also not a cheap technology to develop. VCs have poured $1 billion into the relatively small number of private quantum ventures in 2021 as of September, according to PitchBook.

Meanwhile, the two SPAC transactions in the space this year have nearly equaled that in total proceeds. IonQ’s (NYSE:IONQ) combination with dMY III brought it about $600 million at its September close, while Supernova II (NYSE:SNII) stands to provide $398 million in net proceeds to Rigetti through its deal announced in October, assuming no redemptions.

None of these target companies would have easy IPO paths given their pre-revenue nature, but there are still avenues for public investors to take part in the development of the next age of super computers, assuming SPACs stay active in the field. And, there’s little doubt that they will as any sector that delivers at least one successful deal will have repeat attempts.

IonQ is down from its post-completion high of $31.79, but still closed Thursday at $21.45. Supernova II, meanwhile, finished Thursday trading at $10.39, a performance beaten by only 12 of the 118 SPACs with announced deals that have not yet closed.

Rigetti estimates the total quantum computing market to be valued at $850 billion. But, the technology has thus far only been demonstrated in laboratory settings. So, what a mature quantum market would look like is for now difficult to … compute.

What gives the technology such promise is that it advances beyond the traditional binary computing processes where each piece of information is a binary bit representing either a 0 or 1. Quantum computing is instead done by qubits, and each qubit can simultaneously be both 0 or 1, meaning complex calculations can be run where all possible answers are visible before measuring the response. In practical terms, this process is faster, but it can also unlock discoveries not limited to the parameters of the initial query. It also can uncover correlations within the data not previously thought to exist.

All of the applications for advanced computing methods for which companies currently turn to super computers like IBM’s Watson could theoretically be done faster and better with a quantum computer.

PsiQuantum

PsiQuantum is the clearest next customer in line for a SPAC transaction having already achieved a private valuation of $3.15 billion through successive VC rounds.

It soaked up almost half of the total VC investment in the space this year with its $450 million Series D round completed in July. That doesn’t preclude the potential utility of additional capital and the exit opportunity that a SPAC transaction would provide for PsiQuantum’s investors that have provided $744 million through four rounds dating back to 2016.

In particular, BlackRock (NYSE:BLK) has taken part in multiple funding rounds for the company and has also been a frequent SPAC participant as a PIPE investor.

PsiQuantum is working to create a single quantum computer with at least 1 million qubits, unlike IonQ and Rigetti, which each have planned on multiple independent site computers. This makes sense given PsiQuantum’s close collaboration with Microsoft (NASDAQ:MSFT), which has invested in its last two capital raises through its venture arm.

The path is set for PsiQuantum to build Microsoft’s answer to Watson with a quantum upgrade, but the fact that such a deal hasn’t occurred yet indicates that management is open to outside offers that would keep more of its destiny in its own hands.

D Wave

But while there are few holders of the titanic-scale quantum machines that the technology promises, D Wave is among those focused on creating smaller-scale machines that companies could bring in house. It also offers cloud-connected machines for companies to engage with clients as their needs arise.

It believes its systems are best designed for companies looking to optimize processes as they can theoretically see all potential outcomes at once when toggling changes.

The Canadian company has engineered a fifth-generation machine that uses 5,000 qubits to speed up processing and claims its customers have already booked benefits in sectors across financial services, manufacturing and life sciences. This has not escaped the notice of the top crust of technology investors and its own cap table includes investments by Jeff Bezos, Google and Lockheed Martin (NYSE:LMT).

It has raised $227 million to date, but, other than grants, D Wave has not tapped into outside funding since June 2020, which could present an entry point for SPACs.

Atom Computing

But, a big part of the challenges facing quantum computing ventures is in creating the actual machinery of the heretofore theoretical technology. Atom Computing has decided to use individual atoms as its qubits.

This makes its proposed model more self-contained and smaller in the end, but this adds an extra layer of preparation as each must be built with nuclear precision.

Atom Computing has raised just $21 million to date but these efforts include prominent SPAC-backer Social Capital. There are currently six Social Capital-backed SPACs in searching mode, although four of these have initially pointed themselves at biotech targets.

Cascadia Acquisition Corp. (NASDAQ:CCAI) is another name to keep an eye on for this sector as they filed their S-1 with the stated intent to focus on companies in sectors “fundamentally reshaped by the introduction of advanced technologies.” The team has extensive experience in robotics, AI and automation, so a quantum leap for them is not hard to envision.

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