Why Quantum Computing Matters for National Security
When I first joined NSSIF (the National Security Strategic Investment Fund) I was given the role of investment lead for quantum.
It was a moment when the science behind quantum computing had reached an inflection point.IBM had just surpassed the hundred-qubit mark and PsiQuantum emerged from stealth with a $450m Series D fundraise and the ambition to build a one-million-qubit machine.
The UK was (and still is) a hotbed for quantum science, and numerous British companies joined the global race to build a quantum computer. Accordingly, for a period of time, quantum investments were the priority for NSSIF and so I was kept busy.
We quickly established a deep portfolio of quantum hardware and software companies. There was no single scientific methodology more compelling than another, so we invested across the spectrum - photonics, silicon spin, superconducting circuits and ion traps, amongst others.
Last week companies such as PsiQuantum, IQM and Quantinuum announced fundraises at multi-billion-dollar valuations. Meanwhile Infleqtion and Horizon Quantum unveiled SPAC plans, and Oxford Ionics completed its sale to IonQ for $1.1bn (I was fortunate to lead the NSSIF investment in Oxford Ionics, amongst others). The hunger for quantum technology hasn’t abated.
But unlike AI, there is no ChatGPT for quantum computing. In fact, there isn’t a useful quantum computer yet. Nor is there a company which appears to have a clear lead in the race. And yet investors continue to pour money into these companies. Why? And, perhaps more importantly, why does quantum computing matter for national security?
Quantum computing promises breakthroughs in several defence and intelligence domains. In cryptography, it is likely to break today’s public key encryption standards, exposing sensitive communications unless new quantum-safe systems are adopted. In optimisation, it could transform logistics for force deployment, supply chains, and satellite constellations. In materials science, quantum simulation may accelerate the design of advanced sensors and stealth coatings.
Harnessing these capabilities could tilt the geopolitical balance of power for a nation. And so, much like the nuclear race of the 20th century, we now find ourselves in a race to acquire quantum technology. It is increasingly apparent that the competitor is China.
Readers of my weekly newsletter will know that China recently restructured some research labs in Hong Kong to focus on quantum science. Beijing’s strategy is to fold quantum into its wider apparatus of state-led industrial policy, supported by the principle of civil-military fusion.
Chinese quantum computing companies don’t report fundraising rounds because they’re largely state-backed. But we know that quantum is a priority for China, just as it is for the West. Recent tests of Chinese quantum technology revealed that it is not far behind Western companies. So why isn’t Western quantum science state-backed?
Until relatively recently, the development of quantum computing in the West would probably have been a government programme, much like the Manhattan Project was. The top scientists of our generation would have been invited to serve their nation in the interests of national security, as they are in China.
But the prosperity of humanity in recent decades has created large private capital markets. Citizens in the West have been able to convert their savings into investments at a greater scale than ever before. Historically, those savings might have been invested in the bond markets. But due to low interest rates in recent years, a greater proportion has found its way into venture capital funds.
And so enterprising scientists have greater access to capital than they did in the 1940s. This shift has transformed the development of frontier technologies in the West. Today, the default setting for a top quantum scientist is to found a company, raise money and develop technology. Venture investors understand that if quantum computing works at scale, it will upend many trillion-dollar industries.
From a portfolio perspective, quantum is the archetypal venture investment: one success could return an entire venture fund. That asymmetry is what keeps capital flowing into companies which are potentially still years away from a commercially useful machine. We are in a venture-backed race, where national security interests and investor returns are intertwined.
For Western governments, that is both a challenge and an opportunity. The challenge is that they don’t have direct control of the development of quantum computers, nor necessarily a say in the eventual outcome; the opportunity is to partner with multiple quantum companies. That can be through direct investment - the NSSIF model. This approach enables private capital to fund the technology’s development in ways that would be difficult for a government to achieve alone (unless, of course, that government is China).
This has the benefit of harnessing the powerful incentives of capitalism to drive development at the fastest possible pace. Each entrepreneur knows that if they win the race they might lay claim to a near-monopolistic position in this strategically important technology, with rewards measured in financial gain and geopolitical influence.
In the wrong hands, a million-qubit quantum computer could compromise the cryptographic foundations of a modern state, exposing military communications, financial systems, and critical infrastructure. Western governments must therefore fund grassroots research but also position themselves as early and trusted partners to the most advanced quantum companies. At the point when quantum computing reaches maturity, government will want to be one of the first customers.