Another quantum computing company–the third one in less than a year–has embraced a merger with a special purpose acquisition company (SPAC) to give it a quicker route to going public, and accessing hundreds of millions of dollars in new funding.
D-Wave Systems, based in Burnaby, British Columbia, Canada, this week agreed to a deal with SPAC DPCM Capital that will result in a combined company with an expected valuation of about $1.6 billion whose shares will be publicly traded on the NYSE. D-Wave is expected to net around $340 million–$300 million raised by DPCM for the initial combination and $40 million from private investment in public equity investors such as NEC Corp. Previous investors in D-Wave have included Amazon founder Jeff Bezos, as well as a venture firm affiliated with the CIA.
D-Wave and DPCM said the deal is expected to close in the second quarter this year, and therein lies one of the main advantages of going public via SPAC merger instead of pursuing a traditional IPO or other funding models. It offers relatively quick access to huge amounts of cash. Most SPAC deals close within three to six months, much shorter than the whole IPO roadshow and listing process, and the hundreds of millions of dollars gained out-paces the single-digit or double-digit millions that other private investors might offer.
That’s why in addition to D-Wave at least two other quantum computing companies–IonQ and Rigetti Computing–pursued SPAC deals during 2021. IonQ went public last October, while Rigetti, which announced a SPAC merger that same month, is still awaiting its market debut. IonQ reportedly took in a whopping $650 million in proceeds from its SPAC deal, while Rigetti reportedly is getting about $458 million (Meanwhile, poor D-Wave is settling for $340 million, though that’s $430 million or so in Canadian dollars…)
Each of these companies accepted a SPAC merger just as it was beginning to realize material revenue from its quantum endeavors. IonQ said late last year that it expected between $1.5 million and $1.7 million in revenue for 2021, though it has yet to report its full-year earnings. Rigetti officials said at an investor conference late last year that revenue for the first nine months of 2021 had reached $6.9 million.
For D-Wave’s part, John Markovich, the firm’s CFO said during a webcast this week, “In preparation for this transaction, we have developed a very comprehensive bottoms-up five-year financial plan and are projecting in excess of 160% growth in revenue over the next five years, commencing with a targeted $11 million in revenue for this year. That represents a significant double-digit increase over last year's revenue. Approximately 40% of our 2022 $11 million revenue objective is supported by contracted bookings with another 5% supported by the renewal of contracts that were entered into in prior periods.”
That’s a highly attractive revenue growth pace for a quantum computing company, even if that actual numbers don’t seem all that impressive when compared with other technology companies. Like other quantum computing companies, D-Wave is getting a good chunk of its current revenue–about 50%–from professional services. As the phrase suggests, this is all about giving enterprises who are just starting to investigate quantum computing professional advice about what quantum computation can do for them, how to take advantage of it, and what they should do to start crafting an implementation strategy.
In the long run, most quantum computing companies hope to draw much more revenue from quantum computing-as-a-service, software sales and other models. In the meantime, They need to invest many millions more in R&D and product development than they currently are bringing in via revenue. SPAC deals like this can help them get access to the capital they need to get to the next stage in their development. There has been some criticism of SPAC transactions (see this recent report from The Street), but for now they fit the requirements of many young quantum companies, so it would not be a surprise to see more deals like D-Wave’s as 2022 plays out.