André Konig - quantum investor, entrepreneur, author

My guest today is Andre Konig, a quantum investor, entrepreneur and author. We spoke about how private equity and governments are investing in quantum computing, about the gaps he sees in the markets and much more.

This episode was recorded in June 2021. It is also available on Spotify, Google and several other platforms. See here

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The full transcript is below

Yuval Boger (CMO, Classiq Technologies): Hello Andre and thanks for joining me today.

Andre Konig: Great to see you Yuval and hear you. Happy Tuesday to all listeners.

Yuval: So, who are you and what do you do?

Andre: My name is Andre Konig calling out of beautiful South Beach, Miami, overlooking the beach here from my little standup desk. I'm originally from Germany. I grew up all over Europe, moved to the US 20 years ago, spent 15 years in New York City. I'm a more of your typical business guy by trade, studied economics at the University of Chicago, hold an MBA in strategic management, spent over a decade with the big management consulting houses, built a consulting firm myself from zero up to 300 consultants, but found myself always working at the intersection of corporate strategy and technology, starting with billing systems, customer relationship management systems, enterprise resource systems and so forth in the late '90s and early 2000s, slowly into digital and other technologies later in my career.

And about a decade ago, living just a couple of blocks away from IBM's new downtown Manhattan building that they had erected for their artificial intelligence efforts, IBM Watson, I had been asked if I wanted to start a company for them to explore specific vertical use cases in artificial intelligence, which I did with my partner, Christian Jork, and started an effort on signal detection out of unstructured data for Wall Street. Exited that four years ago and on the prompting of my largest client and friend at that point, started to look into quantum technologies, which in his words was the true paradigm-shifting technology that was the most exciting one. Went to MIT, took all those classes. Didn't have enough brainpower and energy to do a Ph.D., but at least learn some of the scientific foundations in it and started three different ventures in quantum technology that I've been running full time for the last three years.

Yuval: So what are these quantum ventures?

Andre: The first one, Interference Advisors, I always say it's a little bit of the PitchBook of quantum technologies. If you're familiar with that vendor, we collected about 30,000 data points on the quantum tech ecosystem globally, who are the vendors, the users, the use cases, the startups, the investors, the technology and so forth. And we provide the data and analysis around it to investors, governments, executives around the world to help them in their decision making be it strategic or investment-wise. We also did a project recently for the Department of Defense in the US, a gap analysis on the current state of quantum technologies and future state in the US market. So trying to really bring facts and data to the very young and still immature and small, but fast-growing ecosystem.

OneQuantum, technically still an LLC but a nonprofit in spirit, is a global quantum tech community organization organized in chapters. Most of our chapters are regional. We launched two chapters this week in South Africa and in Kenya. We have chapters in India and Nepal and Latin America, hopefully in Europe soon. Would love to start one in Israel if we can get that done. We also have a startup chapter and very famously a Woman in Quantum chapter, which attracts a very large crowd at our conferences. And lastly, I have a small little investment fund, Entanglement Capital, that operates a startup accelerator for quantum tech growth stage companies.

Yuval: Excellent. So let's start with the community. How large is the community in your chapters? How many people are we talking about?

Andre: Every chapter is different and operated by a volunteer president. So we recruit folks locally that work in quantum tech or want to work in quantum tech and build these ecosystems and communities. In Nepal, our email list is roughly 500 people now. At our events, we get 40 to 60 participants and a handful actually joined us paying members. Women in Quantum led by Denise Ruffner from IonQ, is our largest chapter. We get two to three thousand at our Women in Quantum summits. We have hundreds of members in our membership service where we offer a member directory, resources, contacts, networking and so forth and constantly growing. So the overall number fluctuates a lot between events that we do and what we constantly offer which is an evolving kind of value proposition, but it's in the thousands at this point.

Yuval: If you look at the investment side, it certainly looks like there is a lot of money being poured into quantum these days, whether through the public markets or through venture capital. Are you seeing the same thing?

Andre: I think that's a very important question, Yuval. Obviously, we're all excited about quantum technologies, otherwise we wouldn't be here, right? And yes investments and investor appetite in quantum technologies is growing, but not quite as strongly us some of the main street media might lead you to believe. We did an analysis of all publicly announced venture capital and angel investments so private investors, private money into quantum computing last year and it was just about $1 billion which was more than the previous year, but still a relatively small market and something that hadn't been growing significantly.

We just recently looked up the first five months of 2021 and compared that to the first five months of 2020 and we noticed that actually, the investment market hadn't grown at all. There were three very large deals this year that everybody who was a little bit interested in quantum is familiar with SPAC deals public offering deals around IonQ and others.

If you take those statistical tailings out, we had just about $223 million invested in the first four months of 2021, which compares to $230 million over the same period last year. So that market is holding very steady. What is more interesting is that the average deal count is down from 28, over that period last year to 17 this year and the average deal size correspondingly up significantly. So we see more later-stage investments to support and fuel the growth of ventures. And we see fewer bootstrapped seed or angel type of investments to support new ideas and new entrance in this startup race on the quantum tech side. So yes, the market is growing, but it's not kind of everybody is swimming in money type of ecosystem at this point.

Yuval: Do you also track government investments? I know that several governments are looking at quantum as a strategic opportunity and are putting pretty significant money into quantum projects in their countries or regions.

Andre: We do. And everybody has probably heard about China and their huge commitment of speculated $11 billion into quantum technologies and we're not actually exactly sure what that is for, but that's a huge number and probably the leader of the pack. If you compare that to other regions, notably the US where you stand at about $2.5 billion currently in committed money, but you have bills on the US Senate floor for many billions more and you have many other organizations such as the Department of Energy, NIST, DARPA and others pouring in smaller grant amounts that inflate the total to a significantly larger number. That compares to much smaller numbers in Europe, at least historically over the last year, that has changed. France announced that 2 billion euro program. Germany has invested close to 5 billion between state and federal grants into quantum computing and all taken together, the European Union in terms of government grants is now the leader of the pack.

The UK also has a very strong national initiative. Then we have other countries like Australia, India and Israel of course that announced national strategies that are very well funded. Israel, I believe announced $350 million to support the local quantum tech ecosystem. And those numbers are very similar in India, Australia, Japan and a couple of other places. So very well funded. Actually, Angela Merkel, the outgoing German chancellor just yesterday at that press conference said that Germany needs to spend like never spent before if they want to stay competitive in this international technology race. So governments see the importance of this and are spending as much as they can.

Yuval: Given that you organize local chapters that do track deals and that you also have a small venture capital firm, you probably have a very good perspective on whether the US is leading or is behind, or is about the same as other countries. Can you point to a geographical leader in terms of the level of interest and number of companies and so on?

Andre: Define what leadership means. If you take this quantitative view on it, the US and North America are certainly leading. We always cite very rough numbers, track roughly 500 startups within quantum information science. So not just quantum computing, but also quantum encryption, sensing and communications globally. 300 of those are in North America, close to 200 in quantum computing and roughly half of those in hardware and the other half in software. So by sheer numbers, that is the leading market by far compared to Germany, for example, that invest huge amounts of money over the last 12 months where we barely have a dozen different startups and that is the same in Israel and Australia and France and the UK. UK actually has a couple of dozen different startups and so forth. You also see the big vendors: IBM, Google, Microsoft, Amazon and so forth in the US that are extremely active in this space, which is very unique as well.

In Europe, you have a lot younger, very strong user base. Companies in Germany are leading. Volkswagen, BMW, Bosch, BASF and many others have been experimenting with the applications of different quantum technologies for many years already and continue to invest into this significantly. The Netherlands is a very strong market, more focused on quantum communications and encryption and then you have very strong national programs that are a lot more coordinated. I know that is the case in Israel and Australia and Japan, which has a very strong ecosystem between NEC, Fujitsu, Hitachi, Mitsubishi, the local universities and a very small startup system to deliver on national priorities.

If you take a more qualitative look at it and kind of try to intersect this sheer numbers game with the quality of the research and the quality of the private capital and the quality of the use cases, I think Europe truly plays a leading role especially since the European Ryzen program and other pan-European efforts have come on the scene that have fostered very strong cooperation and collaboration between the key European actors and combine superb basic research with a strong strategy of commercializing this. If you take a national perspective of this and I think that it's very important because it has defense and security applications, you can absolutely not neglect what China is doing especially on the quantum communications and encryption side.

Yuval: You mentioned earlier in our conversation that you did a gap analysis, I think for the Department of Defense, without getting into the specific results and the specific questions, but wearing your hat as an investor, where do you see the gaps in quantum computing today? Is it in cloud services? Is it hardware? Is it software? Something that's application-specific? What's your view on that?

Andre: Many gaps and I think the answer to that question again, depends on what your goal is. What I can say about the study for the Department of Defense is the perspective was in the medium term, let's say the next decade and how do we secure the quantum infrastructure and in that respect the workforce was the main key success factor that we looked at and the biggest gap, how do we graduate sufficient PhDs in physics and related fields, but how do we also build the ecosystem of developers, analysts, business folks that understand the space and the next generation of students to really make sure we're able to deliver on all of these initiatives. And that is a huge concern and the data, unfortunately, validated that, not only in the US but most likely in all the large global markets.

Beyond that, I think the biggest gap and the biggest challenge is how do we avoid quantum fatigue? And a lot of folks use this term quantum winter that I'm trying to avoid here because it's been overused at this point, but as much as we've delivered tremendous progress, especially on the product and technology side of quantum technologies, we have failed to deliver a bottom-line impact yet we have brought in many corporate partners, many private investors, board of directors, people that are itching to see bottom-line results to justify their investments and financial resources and time. I think that will be the biggest struggle and how would we solve that through cloud offerings, through consulting offers for rang through hybrid classical-quantum offerings in the near term is another key challenge.

Yuval: When you look at the number of investments that you mentioned earlier, what do you attribute that stagnation to, the fact that the total investment is about the same as it was last year?

Andre: I had a conversation with one of the very large venture capital funds a few months ago. Their line of thinking was that we made one big investment and that is basically the equivalent of we put our chips on the table, but we're not going to double down on it. We're just going to sit at the table, try to understand how the game of quantum technologies is going to pan out and observe it for a while. So I think everybody wants a seat at the table, but lacking a clear understanding of what the timeline of our product roadmaps are, what revenue models will be, what go-to-market channels will be successful.

There isn't yet the appetite to really build big portfolios of investments in quantum technologies and rightly so. Obviously, you also have a lot of less professional money that wants to get into this game and I think there we just see a lack of resources to number one, get the deal flow. You can't really just pick up the yellow pages and look for a quantum computing startup or quantum tech startup. And number two, how do you do the due diligence especially when you start to look at hardware or algorithms that is extremely, extremely difficult to do and a challenge for everybody. So I think we're just extremely resource-constrained on that front.

Yuval: So as we move closer to the end of our conversation today, what kind of deals are you looking for in your venture fund? What companies are interesting to you?

Andre: At Entanglement Capital, our hypothesis is that through the communities and chapters of OneQuantum, we have a deal flow that is earlier and larger than many others. We're privileged to see a lot of teams emerge before others and build close relationships with founders. Through Interference Advisors, we also have a lot of data that allows us to build some early benchmarks and comparables to do some sort of due diligence that might hopefully be more inside the fold and then others as well. So combining these two is our investment thesis, especially as we look at the growth stage startups teams that have raised their government grant money, maybe some early research partnerships with paying customers and are now looking to scale that go for their first bigger check size but needs some help in building up these metrics that VC investors like to see. That is an opportunity that I think is still underserved in the quantum tech market.

Yuval: Very interesting. So how can people get in touch with you to learn more about your work?

Andre: Andrekonig.com is the best way to do it. You'll see a bunch of my silly videos and other references, but most importantly, a contact form and all my social media channels. So just go to andrekonig.com and I'd love to hear from you.

Yuval: That's perfect. Thank you very much Andre for joining me today.

Andre: Thank you Yuval for having me.