OTTAWA — The federal government’s innovation fund is providing Toronto-based Xanadu Quantum Technologies with $40 million in financing to develop the building blocks for a quantum computer that can solve business problems. 

The venture-backed firm is one of a core group of startups across the country working to commercialize advances in the disruptive technology field. “It can be as powerful and as broadly influential as the internet one day,” Xanadu CEO Christian Weedbrook said in an interview with The Logic.

Potential new applications of quantum physics include faster computers that can address more complex tasks than their classical counterparts, capabilities which could be applied to discover new pharmaceuticals or simulate electric battery materials. The field also includes researchers and firms developing algorithms to run on those machines, and more precise sensors.

Founded in December 2016, Xanadu’s photonic approach to quantum computing encodes information in beams of light. In September 2020, it launched a cloud service, allowing developers at enterprise clients and academic institutions to experiment with potential applications.

While Xanadu is bringing in some revenue already, its quantum computer isn’t helping uncover new cell compounds or drug molecules just yet. To start solving real customer problems, it will need a million-qubit system that’s as unsusceptible to errors while transmitting information or doing calculations as the classical ones in wide use today. “On our roadmap, it’s around 2026 to reach that point,” said Weedbrook, although he cautioned that it’s a difficult challenge that could take longer.

Ottawa’s backing—a repayable contribution from the Strategic Innovation Fund (SIF)—will help Xanadu develop a fault-tolerant quantum computing module. “Once you’ve mastered that, it’s then about cutting and pasting these things to replicate and mass produce [them],” Weedbrook said. The firm ultimately plans to build “a quantum data centre that [clients] can leverage over the cloud to solve their important problems,” an undertaking that he noted will take “much more money.”

Under the terms of its SIF agreement, Xanadu must eventually pay back the money. It has also committed to spend a total of $177 million, including the federal funds, on the project between June 2022 and December 2025, and to grow its workforce from about 170 to 210 by then. The firm’s technology “has the potential to really be a game-changer in not one industry, but about every industry,” Innovation Minister François-Philippe Champagne said Monday, announcing the SIF award at the company’s Toronto headquarters. 

Xanadu has raised US$241 million to date, according to PitchBook data. It counts Canadian VC firms Georgian Partners, OMERS Ventures and Radical Ventures, as well as the Business Development Bank of Canada’s deep tech fund, as backers. Other investors include New York-headquartered hedge fund Tiger Global Management; Silicon Valley staple Bessemer Venture Partners; and U.S. intelligence-affiliated In-Q-Tel.

It’s part of a capital influx for the sector. Quantum computing companies raised US$2.8 billion in 120 deals last year, and US$2.96 billion across 130 rounds in 2021, per PitchBook. Over that period, Berkeley, Calif.-based Rigetti Computing and Burnaby, B.C.-headquartered D-Wave both went public by combining with special-purpose acquisition companies. 

Xanadu itself closed its US$100 million Series C round in November 2022. “We’re good for money at the moment,” said Weedbrook. “But we would also like to leverage government support.”

The firm predicts it will eventually be able to run its machines at room temperature, cutting out the bulky supercooling equipment that competitors must build into their boxes. On Monday, Prime Minister Justin Trudeau cited that feature as a selling point. “You can actually have quantum computers that will fit in standard server racks, that businesses … use around the world,” he said. “The idea of being able to package in quantum computing alongside your traditional computers is where that leverage is going to go.”

Xanadu isn’t the only quantum computing startup Ottawa has backed. In May 2021, the SIF awarded $40 million to D-Wave, which pioneered the annealing approach to the technology. In the decade to 2020, the federal government allocated nearly $1 billion for science and business-support programs. 

Earlier this month, Champagne unveiled the $360-million National Quantum Strategy, which will fund research and commercialization via established programs. “We need the traditional industry, but what’s going to power our prosperity and innovation is going to be quantum, AI and cyber,” he said at the time.

Other governments are also spending heavily to try to gain an advantage in the sector. Last May, U.S. President Joe Biden ordered agencies to develop new encryption standards that can withstand quantum computers, and collaborate with the private sector on defensive measures. The White House also convened representatives from OECD countries, including Canada, to discuss ways to cooperate in the field. China’s 14th five-year plan for national informatization targets “notable advances” in quantum information by this year.

Canada’s national strategy is “a good starting point,” according to Weedbrook, who noted that Xanadu has participated in programs it will fund, like university research partnerships and Mitacs, which subsidizes and arranges industry placements for students. 

Innovative Solutions Canada is charged with $35 million over seven years for contracts for federal departments to test prototypes, or $5 million annually. Governments should be spending at least 10 times that on quantum procurement, said Weedbrook; buying from startups gives them revenue and the chance to test and refine their products with real customers. “Ultimately, billions need to go into any industry that’s really deeptech,” said Weedbrook. 

As it continues to build its fault-tolerant module, Xanadu is working with partners like Amazon Web Services and strategic investor Volkswagen to develop applications for its technology.

While the company has committed to keeping its headquarters in Toronto, it’s looking to expand abroad in search of talent. The firm plans to open a U.S. office in the next two years, and has considered Singapore and Australia, from which Weedbrook emigrated to Canada. 

If companies like Xanadu can commercialize quantum discoveries domestically, Weedbrook said, “there’s a chance for Canada to be a world leader.”

This story has been updated with remarks from the announcement.