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D-Wave Systems Inc. has become the latest quantum computer developer to pursue a public listing through a merger with a special purpose acquisition company (SPAC).

The Burnaby, B.C.-based company, a pioneer in the field of harnessing the power of subatomic particles to create vastly more powerful processors than exist now, said Tuesday it had entered into a definitive transaction agreement to combine with New York Stock Exchange-listed DPCM Capital Inc. The deal would value the combined company, to be renamed D-Wave Quantum Inc., at US$1.2-billion.

The deal would see D-Wave access US$300-million in gross proceeds held by Miami-based DPCM – “assuming no redemptions” by the SPAC’s shareholders, the Canadian company said in a release. D-Wave has also secured a commitment for a $40-million private placement from existing and new investors including Canadian pension fund PSP Investments – its largest shareholder – Japan’s NEC Corp., Goldman Sachs Asset Management, New Jersey-based Yorkville Advisors and Aegis Group Partners of Richmond Hill, Ont.

“Today marks an inflection point signaling that quantum computing has moved beyond just theory and government-funded research to deliver commercial quantum solutions for business,” D-Wave chief executive officer Alan Baratz said in a release. The company and its backers “collectively believe that this isn’t a moment of hope or science. Instead, we believe this event represents a moment of practical value creation” for customers and investors.

D-Wave’s proposed SPAC combination follows a similar move last year by IonQ Inc., which is developing quantum computers that would draw power by creating charged ions from a rare earth metal. The College Park, Md.-based startup completed its merger in September at a US$2-billion valuation, although its stock, after peaking at US$35.90 on the NYSE last fall, has since fallen by nearly two-thirds amid a broad-based technology sell-off.

Another quantum computer developer, Berkeley, Calif.-based Rigetti & Co. Inc., said in October it also planned to go public through a SPAC deal that would value it at US$1.5-billion.

The SPAC moves are further evidence the market for quantum machines is heating up and represent an opportunity for D-Wave to rebound after recent challenges.

D-Wave, founded in 1999, became an early leader in the race to develop the world’s most powerful processors. Scientists for years had theorized quantum processors could solve vastly more complex problems that the world’s most powerful computers. But they figured it could take decades to develop them. IBM was trying.

In 2004, D-Wave co-founder Geordie Rose broke from conventional thinking, concluding the approach most were pursuing would be impractical. Instead, he embraced emerging scientific theories and set out to make a different type of quantum computer that he thought could get to market sooner.

Classic computer systems are made of bits, or tiny circuits on a microchip that are either open or closed – representing ones and zeros in conventional software.

In a “gate-model” quantum computer like IBM’s, bits are replaced with entities called qubits. Each qubit holds a value that can simultaneously behave as though it is a one and a zero owing to the weird properties of matter at small scales. If many qubits are linked together – a technical challenge – they can zip through calculations of a sort that would tie up a conventional computer for eons. A gate-model machine made to work at a practical scale would have many potential applications.

In contrast, D-Wave’s “annealing” system uses qubits that start with a similar mixed identity, then quickly settle into one pattern or another. D-Wave’s proposition was to use this transition to solve more limited but practically useful optimization problems. To build such a machine, D-Wave had to generate temperatures colder than deep space to slow atoms inside its processors and harness their quantum effects. Mr. Rose called it “the hardest engineering project that has ever been attempted.”

Mr. Rose, who left the company in 2014, was greeted with skepticism by many in the scientific community. But D-Wave built progressively better and faster machines, raised hundreds of millions of dollars from the likes of the U.S. Central Intelligence Agency’s venture-capital arm and Amazon founder Jeff Bezos. It sold models to a handful of buyers including Google, Lockheed Martin, NASA and the U.S. Los Alamos National Laboratory.

Then-D-Wave CEO Vern Brownell hired Mr. Baratz in 2017 to build software systems that worked with its hardware in order to broaden their commercial use. Mr. Baratz had led Sun Microsystems Inc.’s effort in the 1990s to transform Java from a nascent programming language into the internet’s main software-writing program.

Mr. Baratz led a shift in D-Wave’s strategy, which accelerated after he replaced Mr. Brownell in 2020. D-Wave focused on providing online access to its technology rather than actively selling its costly shed-sized machines (although it recently sold its first device outside North America, to a German supercomputing centre). Online customers, which include Volkswagen and biotech startups, have used D-Wave to solve complex problems such as improving traffic flows and identifying drugs.

But for all its efforts, D-Wave’s revenues lagged expectations and it was years from reaching financial self-sufficiency when it completed a US$40-million refinancing in 2020 that wiped out most of the value of some long-time investors, and cut its valuation to less than US$170-million from US$450-million. Last March, the Government of Canada provided $40-million to D-Wave.

Filings with the U.S. Securities and Exchange Commission connected with the merger show D-Wave needs the money – and soon. The company is forecasting it will generate just US$11-million in revenue this year and burn $58-million in cash. By the end of 2022, it would have US$230-million in cash left over – if it completes the SPAC financing, which is expected to bring in US$280-million net of transaction fees.

The filings show D-Wave forecasts revenue would rise by an average of 163 per cent over the next four years, to US$27-million in 2023 and rising to US$551-million in 2026. The forecast shows the company would burn through nearly US$200-million in cash from 2022 to 2024 inclusive, before it starts generating positive cash flows and operating earnings in 2025.

D-Wave’s travails, as well as its rosy forecast, underscore the quantum computing space is still in its nascency, but that interest is also heating up as long-term promises of financial success translate to nearer-term promises.

In addition to continued technological advances by D-Wave and other long-time developers, the sector has been energized by the arrival of upstarts including IonQ, PsiQuantum Corp. of Palo Alto, Calif., and Toronto’s Xanadu Quantum Technologies Inc., which brought different approaches and attracted big investor backing. Xanadu, for example, is trying to draw quantum power by manipulating light particles; it raised US$100-million last year.

Last October, D-Wave said it would follow the lead of IBM, Google and others and develop its own gate model computer, although it is still continuing to advance its annealing machines, making it the only company to pursue both strategies.

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