U.S. venture giant Bessemer set to lead US$100-million funding of Toronto quantum computing upstart Xanadu, sources say

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U.S. venture capital giant Bessemer Venture Partners has signed on to lead a US$100-million funding of Toronto startup Xanadu Quantum Technologies Inc., as competition intensifies in a global race to bring quantum computers to market.

Three sources familiar with the deal, whose composition is still coming together and which has not been finalized, say it would value Xanadu at US$400-million post-transaction. The deal would cement Xanadu’s status as one of a handful of the leading upstart companies in the nascent quantum computing space. The Globe and Mail is not naming the sources because they are not authorized to speak publicly about the financing.

Five-year-old Xanadu has previously raised $41-million in 2018 and 2019 from Canadian backers including OMERS Ventures, Georgian Partners, Radical Ventures, Real Ventures and BDC Capital, plus U.S. billionaire Tim Draper. Xanadu chief executive and founder Christian Weedbrook declined comment.

The new funding would be the second bet by Bessemer – an early funder of Pinterest, LinkedIn, Yelp, Skype, and Canada’s Shopify, Clio and Ada Support – in the quantum space, after investing US$20-million last year in Rigetti Computing.

Xanadu, along with U.S. startups PsiQuantum Ltd., IonQ Inc. and conglomerate Honeywell International Inc., are bringing newer approaches to a field that includes global giants Microsoft, Google, Intel, IBM and Burnaby, B.C.’s D-Wave Systems.

They are all attempting to build the world’s most powerful computers by harnessing the power of subatomic particles to perform calculations that would take current supercomputers millennia to run.

Industry players believe quantum computers should eventually offer powerful new ways to help with drug discovery, materials science, financial risk modelling and other applications. The federal government this year recognized the strategic importance of the budding sector, contributing $40-million to D-Wave in March and committing $360-million in the April budget to a national quantum strategy.

But quantum computing is still early in its development and customers have been mostly limited to U.S. government labs, startups and researchers, plus giant companies with physicists on staff able to tinker with the technology. Some skeptics believe it will take many years and billions of dollars to develop functional, commercially successful machines that live up to their hype – if that goal is achievable at all. For example, the quantum computer that Google is developing was able to perform a calculation in minutes that would take a supercomputer 10,000 years – but it was designed to solve just that one problem.

D-Wave, maker of the first commercially available quantum machines, has struggled to commercialize its technology, despite 20-plus years of development and US$300-million-plus in funds raised. Last year it stopped efforts to sell hardware to instead focus on offering online access to its machines and completed a costly refinancing that wiped out most of the value of some long-time investors.

D-Wave and many rivals are developing machines that contain quantum chips that must be cooled to temperatures colder than deep space in order to function. But Xanadu, PsiQuantum, IonQ and Honeywell have taken different approaches.

Xanadu and PsiQuantum, which has raised US$215-million in venture funding, are trying to draw their computing power from light. Xanadu uses a process called “squeezing light” by firing lasers that enable light particles to generate quantum effects on thumbnail-sized chips. The method, based on Mr. Weedbrook’s PhD thesis at Australia’s University of Queensland, happens at room temperature, and he believes with further development he can cut out supercooling, which is still required for part of the process, altogether.

Without supercooling – an elaborate and expensive undertaking – Mr. Weedbrook has said Xanadu can develop machines quicker and cheaper than other quantum computers and eventually shrink its chips enough that they could fit in computers and smartphones. By contrast, D-Wave’s computers are housed in shed-sized boxes and require very precise operating conditions; Google and IBM would face similar difficulties with their approach.

Mr. Weedbrook has predicted his quantum processor could be powerful enough to outperform supercomputers on a large scale by late next year. For now, Xanadu is offering a handful of clients online access to its early machines and has created open-source software tools for developers to work with a range of quantum computers.

Xanadu and PsiQuantum are facing off against IonQ and Honeywell, which are taking a different approach. Their “trapped ion” technology would also work at room temperatures and derive power by creating charged ions from rare-earth metal ytterbium and suspending them in oscillating voltage fields.

IonQ in March announced plans to become the first publicly traded “pure-play” quantum computing company by merging with a special purpose acquisition company. The deal would value the new entity at US$2-billion and provide gross proceeds of US$650-million from investors including Fidelity Management and Research, Silver Lake, venture funds backed by billionaires Bill Gates and Marc Benioff and carmakers Hyundai Motor Co. and Kia Corp.