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Atom Computing

Atom Computing, a quantum computing company headquartered in Berkeley, California, seems to be on the fast track for funding.

This week Atom announced it had secured$60MSeries B round of financing led by Third Point Ventures. The round also included Prime Movers Lab and insiders Innovation Endeavors, Venrock, and Prelude Ventures.

Atom was founded in 2018 with $5M in seed funds by Benjamin Bloom and Jonathan King. Over two years, the duo used those funds to secretly staff and build a quantum computer with a unique technology. What set Atoms computer apart from other quantum machines was that it was the first quantum computer to use nuclear-spin qubits created from optically-trapped neutral atoms.

First-Generation Quantum Computer, Phoenix

In July 2021, Atom Computingreceived an additional $15M in Series A funding from investorsVenrock, Innovation Endeavors, and Prelude Ventures, plus three grants from the National Science Foundation.

According to a statement on Atom's press release by Rob Hays, Atom Computing's president and CEO, there was no shortage of investment interest. "We've seen a tremendous amount ofinvestor interest in what many are starting to believe is a more promising way to scale quantum computers neutral atoms, he said. Our technology advancements and this investment give us the runway to continue our focus on delivering the most scalable and reliable quantum computers."

Whats different about its technology

Most of todays quantum computers use two types of qubits, either superconducting (IBM & Google) or trapped-ion (Quantinum or IonQ). Amazon doesnt yet have a quantum computer, but it plans to build one using superconducting hardware. In contrast, Psi Quantum and Xanadu use photons of light that act as qubits.

Atom computing chose to use a different technology -nuclear-spin qubits made from neutral atoms.Phoenix, the name of Atoms first-generation, gate-based quantum computer platform, uses 100 optically trapped qubits.

These qubits are created from an isotope of Strontium, a naturally occurring element considered to be a neutral atom. Goingdeeper, neutral atoms have equal numbers of protons and electrons. However, isotopes of Strontium have varying numbers of neutrons. These differences in neutrons produce different energy levels in the atom that allow spin qubits to be created. Atom Computing uses the isotope Strontium-87 and takes advantage of its unique energy levels to create spin qubits.

It is important for qubits to remain in a quantum state long enough to complete running the quantum circuits. The time that a qubit retains its quantum state is called its coherence time. Neutral atom qubits have a longer coherence time than most other qubit technologies.

Lasers instead of wires are used for precision control of the strontium-87 qubits. Lasers eliminates wiring, which can create radiation and noise that negatively affects coherence.

There are many other technical reasons for using neutral atom spin qubits but beyond the scope of this article.

Second generation plans

Artist rendering of Atom Computings second-generation quantum

With its latest $60M Series B funding, Atom Computing plans to build a larger, second-generation neutral-atom quantum computer. Many additional qubits will give the system increased computational ability. Atom Computing is currently likely to have undisclosed customer trials and use cases in progress. However, we expect new and more significant use cases to be publicly announced once the new quantum system is operational.

Patrick Moorhead, president and chief analyst of Moor Insights and Strategy, said, Qubit coherence, fidelity, and scalability are essential factors for achieving quantum advantage. Atom Computing has already demonstrated that Phoenix, its first-generation 100+ nuclear-spin qubit quantum processor, has the potential to check all those boxes. With the additional $60M Series B funding, I believe Atom could build a large qubit, second-generation quantum system that either brings it to the edge of quantum advantage or possibly even achieves it.

Analyst notes:

Note: Moor Insights & Strategy writers and editors may have contributed to this article.

Moor Insights & Strategy, like all research and tech industry analyst firms, provides or has provided paid services to technology companies. These services include research, analysis, advising, consulting, benchmarking, acquisition matchmaking, or speaking sponsorships. The company has had or currently has paid business relationships with 88,A10 Networks,Advanced Micro Devices, Amazon,Ambient Scientific,AnutaNetworks,Applied Micro,Apstra,Arm, Aruba Networks (now HPE), AT&T, AWS, A-10 Strategies,Bitfusion, Blaize, Box, Broadcom, Calix, Cisco Systems, Clear Software, Cloudera,Clumio, Cognitive Systems, CompuCom,CyberArk,Dell, Dell EMC, Dell Technologies, Diablo Technologies,Dialogue Group,Digital Optics,DreamiumLabs, Echelon, Ericsson, Extreme Networks, Flex, Foxconn, Frame (now VMware), Fujitsu, Gen Z Consortium, Glue Networks, GlobalFoundries, Revolve (now Google), Google Cloud,Graphcore,Groq,Hiregenics,HP Inc., Hewlett Packard Enterprise, Honeywell, Huawei Technologies, IBM,IonVR,Inseego, Infosys,Infiot,Intel, Interdigital, Jabil Circuit, Konica Minolta, Lattice Semiconductor, Lenovo,Linux Foundation,Luminar,MapBox, Marvell Technology,Mavenir, Marseille Inc, Mayfair Equity, Meraki (Cisco),Mesophere, Microsoft, Mojo Networks, National Instruments, NetApp, Nightwatch, NOKIA (Alcatel-Lucent), Nortek,Novumind, NVIDIA,Nutanix,Nuvia (now Qualcomm), ON Semiconductor, ONUG, OpenStack Foundation, Oracle, Panasas,Peraso, Pexip, Pixelworks, Plume Design, Poly (formerly Plantronics),Portworx, Pure Storage, Qualcomm, Rackspace, Rambus,RayvoltE-Bikes, Red Hat,Residio, Samsung Electronics, SAP, SAS, Scale Computing, Schneider Electric, Silver Peak (now Aruba-HPE), SONY Optical Storage,Springpath(now Cisco), Spirent, Splunk, Sprint (now T-Mobile), Stratus Technologies, Symantec, Synaptics, Syniverse, Synopsys, Tanium, TE Connectivity,TensTorrent,TobiiTechnology, T-Mobile, Twitter, Unity Technologies, UiPath, Verizon Communications,Vidyo, VMware, Wave Computing,Wellsmith, Xilinx,Zayo,Zebra,Zededa, Zoho, andZscaler.Moor Insights & Strategy founder, CEO, and Chief Analyst Patrick Moorhead is a personal investor in technology companiesdMYTechnology Group Inc. VI andDreamiumLabs.

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Atom Computing Plans To Build A Bigger And Better High-Tech Quantum Computer With Its Latest $60 Million Series B Funding - Forbes

Johannes Oberreuter, Quantum Computing practice lead and data scientist at Reply, spoke to Information Age about how quantum computing is helping businesses to meet objectives

Quantum is emerging as a new vehicle for business problem solving.

Quantum computing is an evolving technology that promises to enhance an array of business operations. Based on quantum mechanics that focus on the smallest dimensions of nature molecules, atoms and subatomic particles quantum computers are set to provide faster solutions to complex business problems, through testing multiple possible solutions for a problem simultaneously.

The basis for quantum computing is a unit of information known as a qubit; unlike bits, which can only have the values zero or one, can come in the form of anything in between, which allows for this new approach to become possible, and is called a superposition. Combined, multiple qubits can produce many outcomes at the same time. Every extra qubit doubles the search space, which therefore grows exponentially.

Many companies are looking into how quantum can bolster industries and provide new use cases for businesses. One organisation thats exploring this space is Reply, which has been developing solutions for optimisation in logistics, portfolio management and fault detection, among other areas.

Discussing how Reply is helping to provide possible use cases to its clients, quantum computing expert Johannes Oberreuter said: We work on a level which translates the problem into a quantum language that is as universal as possible, and doesnt go too deep into the hardware.

The first thing weve found thats delivering value now is the domain of optimisation problems. An example is the travelling salesman problem, which has lots of applications in logistics, where complexities and constraints also need to be accounted for, like during the pandemic.

Very often, problems, which are found too complex to be optimised on common hardware, are tackled by some heuristics. Usually, theres a team or a person with experience in the domain, who can help with this, but they dont know yet that there are better solutions out there now. Quantum computing allows for problems being presented in a structured way similar to a wish list, containing all business complexities. They are all encoded into a so-called objective function, which can then be solved in a structured way.

Companies have used all sorts of algorithms and brain power to try to solve optimisation problems. Finding the optimum with an objective function is still a difficult problem to solve, but here a quantum computer can come to the rescue.

Pushing parameters

According to Oberreuter, once a quantum computer becomes involved in the problem solving process, the optimal solution can really be found, allowing businesses to find the best arrangements for the problem. While current quantum computers, which are suitable for this kind of problems, called quantum annealers now have over 5,000 qubits, many companies that enlist Replys services often find that problems they have require more than 16,000-20,000 variables, which calls for more progress to be made in the space.

You can solve this by making approximations, commented the Reply data scientist. Weve been writing a program that is determining an approximate solution of this objective function, and we have tested it beyond the usual number of qubits needed.

The system is set up in a way that prevents running time from increasing exponentially, which results in a business-friendly running time of a couple of seconds. This reduces the quality of the solution, but we get a 10-15% better result than what business heuristics are typically providing.

Through proofs-of-concepts, Reply has been able to help clients to overcome the challenge of a lack of expertise in quantum. By utilising and building up experience in the field, a shoulder-to-shoulder approach helps to clarify how solutions can be developed more efficiently.

Machine learning has risen in prominence over the last few years to aid automation of business processes with data, and help organisations meet goals faster. However, machine learning projects can sometimes suffer from lack of data and computational expense. To combat this, Reply has been looking to the problem solving capabilities brought by quantum computing.

Oberreuter explained: What weve discovered with quantum machine learning is you can find better solutions, even with the limited hardware thats accessible currently. While there will probably never be an end-to-end quantum machine learning workflow, integration of quantum computing into the current machine learning workflow is useful.

Some cloud vendors now offer quantum processing units (QPUs). In a deep learning setup for complex tasks, you could easily rent it from the cloud providers by individual calls to experiment, if it improves your current model.

What weve found interesting from our contribution towards the quantum challenge undertaken by BMW and AWS, is the marriage of classical machine learning models with quantum models. The former is really good at extracting attributes from unstructured data such as images, which are then joined by a quantum representation which provides an advantage for classification.

How organisations can drive value from AI on the edge

Mike Ellerton, partner at Go Reply, spoke to Information Age about Replys recent research conducted into edge AI, and how organisations can drive value from the technology. Read here

Additionally, quantum technologies are being explored for cyber security, with the view that soon quantum computers can solve problems that are currently insurmountable for todays technologies. A particular algorithm thats been cited by Reply, that could be solved by quantum computing, is the one used for RSA key cryptography, which while trusted to be secure now, is estimated to need 6000 error-free qubits to be cracked in the space of two weeks.

Quantum technology for cyber security is now on the shelf, and were offering this to our clients to defend against this threat, said Oberreuter. Quantum mechanics have a so-called no-cloning theorem, which prevents users from copying messages sent across a communication channel. The crux is that in order for this to work, you need a specialised quantum channel.

We have experts who specialise in cyber security, that have been leading the effort to craft an offering for this.

Reply is a network of highly specialised industry companies, that helps clients across an array of sectors to optimise and integrate processes, applications and devices using the latest technologies. Established in 1996, the organisation offers services for capabilities including quantum, artificial intelligence (AI), big data, cloud and the Internet of Things (IoT). More information on the services that Reply provides can be found here.

This article was written as part of a paid-for content campaign with Reply

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How quantum computing is helping businesses to meet objectives - Information Age

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The last time we covered Arqit Quantum (NASDAQ:ARQQ) was when it was still Centricus Acquisition Corp, the SPAC that we invested a small, speculative exposure in. The thesis remains mostly unchanged. Using symmetric keys is secure, given trust can be established between the parties sharing the key, and that this is basically the only tenable solution against quantum computing, which can break any encryption based on mathematics. The commercial value of the product is being backed up by early adopters who are signing up for long-term commitments with Arqit and have mission-critical data needs. Arqit will have gone from pre to post-revenue as of the end of 2021, and we believe that as an end of the world hedge, unlike crypto which could by the way be universally dismantled by quantum computing in a few instants, Arqit fits the bill perfectly.

The whole space of cybersecurity tends to be wholly underinvested. Not until a data breach occurs do most companies ever really think about their cybersecurity needs. Indeed, it's a segment that still has quite the room to grow.

Arqit Quantum

Companies that do understand the importance of cybersecurity are the ones that make up Arqit's already developing pipeline.

Arqit Quantum

The UK government, major Japanese conglomerates, IoT, telco and defense companies all make up the current pipeline. Companies like Babcock (OTCPK:BCKIF) and Northrop Grumman (NYSE:NOC) already have signed agreements with Arqit to both use and collaborate in developing as many use cases for Arqit's courier-like model for symmetric keys. The companies share a common need to protect data communications for mission-critical uses. In particular the defense companies are a vote of confidence for the use-cases and necessity of symmetric key courier infrastructure for data communication.

One of the key selling points of Arqit is also the fact that as opposed to dramatic infrastructure shifts or an arms race of encryption algorithms that might have otherwise been required to defend against the quantum threat, Arqit uses immutable and unbeatable properties of photon transmission in conjunction with encryption algorithms that have been used in the past by banks and governments, with literal couriers transporting them. Arqit is just an outsourced courier-like service that for now uses just the cloud and terrestrial data centers run its platform, but will eventually launch satellites with small, but exceptionally powerful computers that will be able to root keys that will be generated between recipients and senders of data using random numbers and a proprietary protocol. The addressable market is therefore every networked device between which safe transmission of data is desirable, and the system makes symmetric keys, which traditionally required high-levels of interparty trust in exchange for security, a totally trustless system.

The revenue and EBITDA projections, which are based on these recurring revenue contracts with the customers in the pipeline, amount to the following and imply the following multiples on forward earnings.

The Value Lab

While revenues and profits are only getting started in FY 2022, 2023 is when we start to see more meaningful EBITDA. With the addressable market including all interconnected devices where privacy is important, even at the 2025 forecast levels, we are of course still at a very nascent stage for this market.

The quantum threat is still a while away. People are not close to working a quantum computer yet, but the point is that it's inevitable, and if you aren't prepared the moment a quantum computer comes online, perhaps in the hands of a quite hostile government or entity, then it will be an instant before that quantum computer decrypts all your data for whatever purposes they might have had for it. With the core market of mission-critical use-cases already forming a nice revenue base for a recurring model with strong theoretical economics, and the further commercialization possible into the broader addressable market, the current valuation, while already acknowledging the uniqueness and timeliness of the Arqit offer, is probably a long way off from where it could be in the next 10-15 years when all networks are threatened by quantum attacks.

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Arqit Quantum Is Terrestrial For Now, But Will Go To Space - Seeking Alpha

The goal of building a quantum computer is to harness the quirks of quantum physics to solve certain problems far faster than a traditional computer can. And at the heart of a quantum computer is the quantum bit, or qubitthe quantum equivalent of the 1s and 0s that underlie our digital lives.

A qubit is the fundamental building block of quantum information science technology, says Joseph Heremans, an electrical engineer at the US Department of Energys Argonne National Laboratory.

Traditional bitscan be any sort of switch, anything that can flip from 0 to 1.But building a qubit takes something more.

A qubit is essentially a quantum state of matter, Heremans says. And it has weird properties that allow you to store more information and process more information than a traditional bit.

Those weird properties include superposition (the ability to be in a mixed state, a weighted combination of 1 and 0) and entanglement (in whichmultiple qubits share a common quantum state). Both might seem like theyd be hard to come by. Fortunately, nature has provided lots of options, and engineers have cooked up a couple more.

Researchers are exploring more than half a dozen ways to implement qubits, with two promising approaches currently in focus: superconducting circuits and trapped ions.

Ionsatoms that have lost one or more of their electronsemerged as a promising qubit platform at the dawn of experimental quantum computing in the mid-1990s. In fact, the first qubit ever built was fashioned out of a single beryllium ion.

Ions are natural quantum objects: Two of the discrete energy levels of their remaining electrons can represent a 0 or 1; those energy levels are readily manipulated by lasers; and because ions are electrically charged, they are easily held in place by electromagnetic fields. Not much new needed to be invented to produce trapped-ion qubits. Existing technology could handle it.

Another upside of trapped ions is that they are stalwart defenders against a qubits greatest nemesis: loss of information. Quantum states are fragile, and superpositions stick around only if the qubits dont interact with anything. A stray atom or an unexpected photon can collapse the quantum state. In physics speak, the qubit decoheres. And decoherence is the death knell to any quantum information technology.

We want a system where we can manipulate it,because we want to do calculations, butthe environment doesnt talk to it too much, says Kenneth Brown, an electrical engineer at Duke University.

Trapped ions check both boxes. Held safely in a darkened vacuum, they have a low interaction with the environment,he says.

Because of that robustness, trapped ions exhibit some of the lowest error rates of any qubit technology.But they struggle to grow beyond small-scale demos. Adding more ions to the mix makes it harder for the lasers that control them to single out which one of them to talk to. And scaling up to more qubits means getting lots of auxiliary tech, such as vacuum systems, lasers and electromagnetic traps, to play along.

The largest trapped-ion quantum computer on the market is a 32-qubit machine built by IonQ, headquartered in College Park, Maryland. But quantum engineers want machines with hundreds, if not thousands, of qubits.

Just a few years after the first trapped-ion qubit, researchers produced the first qubit implemented in a superconducting circuit, in which an electric current oscillates back and forth around a microscopic circuit etched onto a chip.

When cooled to temperatures just a few hundredths of a degree above absolute zero, the oscillator circuit can behave as a quantum object: A flash of radio waves tuned to just the right frequency can put the circuit into one of two distinct energy levels, corresponding to a quantum 1 or 0. Follow-up zaps can steer it into a superposition of those two states.

Theyre a really promising route to make quantum computers because they can be made on microchips, says Paul Welander, a physicist at SLAC National Accelerator Laboratory. And microfabrication is something that weve been doing in the semiconductor industry for a long time.

Taking advantage of techniques used to make computer chips, a manufacturer can fabricate superconducting circuits on large wafers.

Another advantage of the superconducting circuit is the ability to make a device thats hundreds of micrometers across and yet, it behaves like an atom, Welander says.

Engineers get all the quantumness of an atom but with the ability to design and customize its properties by tuning circuit parameters.

These circuits are also extremely fast, cranking through each step in a computation in mere nanoseconds. And because they are circuits, they can be designed to suit the needs of engineers.

Superconducting qubits have found a home in the largest general-purpose quantum computers in operation. The biggest, unveiled in November 2021 by IBM, contains 127 qubits. That chip is a step toward the companys goal of creating a 433-qubit processor in 2022, followed by a 1,121-qubit machine by 2023.

But superconducting circuits struggle against decoherence as well.

They are made of many, many atoms, Welander says.

That provides ample opportunity for something to go wrongmaterials and fabrication processes present a particularly thorny challenge when attempting to mass-produce millions of qubits at a time.

Material interfaces are especially problematic. Metal electrodes, for example, readily oxidize. Now we have an uncontrolled state at the surface, Welander says, which can lead to decoherence of the quantum state and loss of information.

Another drawback is that superconducting circuits must stay frigid, hovering at temperatures just above absolute zero. That requires extreme refrigeration, which presents challenges for scaling superconducting quantum computers to thousands or millions of qubits.

While these two qubit technologies are perhaps the best known, they are not the only game in town.

Another approach employs flaws in diamonds. These gemstones are made up of carbon atoms arranged in a rigid, repeating latticework. But sometimes, another type of atom gets in. For example, a nitrogen atom or a vacancythe absence of an atomcan take the place of a carbon atom. Such nitrogen and vacancy impurities are a bit a like a trapped molecule in the diamond crystal, Heremans says.

Here, electrons trapped in the crystaline flaw store information in a quantum property called spin, a type of intrinsic rotational momentum. When measured, the spin takes on only one of two optionsperfect for encoding a 1 or 0. Those options can be toggled with laser light, radio waves or even mechanical strain.

Researchers are also exploring making qubits out of electrically neutral atoms, trapped using lasers instead of electromagnetic fields. Neutral atoms are the most natural qubit candidate, says Mikhail Lukin, a physicist at Harvard University.

Like ions, neutral atoms can be isolated from the environment and stay coherent for long stretches of time. But modern laser technology gives scientists more flexibility with neutral atoms than electromagnetic traps do with trapped ions. Neutral atoms can be organized into many different 2D patterns, providing more ways to connect the atoms and entangle them, leading to more efficient algorithms.

Using neutral atoms, Lukin and colleagues recently unveiled a 256-qubit special-purpose quantum computer known as a quantum simulator, the largest of its kind, with plans to build a 1,000-qubit simulator in the next two years.

The list of possible qubits goes on. Photons, semiconductors, moleculesthese and other platforms have potential.

But despite all these options, theres no clear winner. Its not yet obvious what can be scaled up to 1,000 qubits or beyond. Its not even certain that there is just one best approach.

Were still in hunting-and-finding mode, Welander says. For quantum computing, it may actually end up being something hybrid, using multiple quantum materials and systems.

Perhaps a single processor will employ superconducting qubits working alongside diamond-defect qubits, which might talk to other quantum processors using photon-based qubits.

In the end, what makes the best qubit depends on how the qubit is being used: A good qubit for quantum computing might be different from a good qubit for quantum sensing or a good qubit for quantum communication, Heremans says.

What is clear is that qubit progress isnt just a physics problem. It really requires expertise in a wide range of fields, from materials science to chemical and electrical engineering, Welander says.

And its not just the qubits themselves that need attention. Qubits require a lot of support technologyvacuum systems, cryogenics, lasers, microwave components, nests of cablesall working in sync to get the most out of any quantum processor.

In many ways, quantum computers are where digital computers were in the 1950s and 60s. Then too, researchers were searching for the right technology to represent 1s and 0s and perform the logic operations necessary for any calculation. Bulky vacuum tubes gave way to more compact transistors; germanium transistors yielded to better-performing ones made of silicon; integrated circuits let engineers cram many transistors and support electronics onto single wafers of silicon.

For quantum computing to reach its full potential, qubits still need the right technology. Theres a lot of areas where people who are interested and people who are intrigued can plug in and make an impact, Welander says.

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More than one way to make a qubit - Symmetry magazine

In todays China, behemoths like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. are out of favor, but little giants are on the rise.

Thats the designation for a new generation of startups that have been selected under an ambitious government program aimed at fostering a technology industry that can compete with Silicon Valley. These often-obscure companies have demonstrated theyre doing something innovative and unique, and theyre targeting strategically important sectors like robotics, quantum computing and semiconductors.

Wu Gansha won the little giants title for his autonomous driving startup after a government review of his technology. That gave the Beijing company, Uisee, an extra dose of credibility and financial benefits. Last year, it raised more than 1 billion yuan ($157 million), including money from a state-owned fund. Its also become a unicorn, with a valuation of at least $1 billion.

Its an honor to wear the little giant label, Wu said. The essence of the project is that the companies must possess some specialty that others dont have.

The program has been around for more than a decade, but it has taken on new prominence after Beijing launched a sweeping crackdown against leading companies like Alibaba and Tencent. The little giants label has become a valued measure of government endorsement, a signal for investors and employees that the companies are insulated from regulatory punishment. Chinese President Xi Jinping has given his personal blessing to the program.

This is helpful to startups in many ways: Its a subsidy. Its a grant. Its an honor. Its a stamp of approval, said Lee Kai-Fu, founding managing director of the venture firm Sinovation.

The program is key to the Chinese Communist Partys ambitious strategy to reposition the countrys technology industry. For two decades, China largely followed the Silicon Valley model, allowing entrepreneurs to pursue their ambitions with little government oversight. That led to enormous successes, including e-commerce pioneer Alibaba, social media giant Tencent and ByteDance Ltd., creator of the hit TikTok short-video app.

Kai-Fu Lee, chairman and chief executive officer of Sinovation Ventures, center, speaks during a panel discussion at the Bloomberg New Economy Forum in Beijing in 2019. | BLOOMBERG

But in a series of regulatory moves over the past year, Beijing made clear the technology industry must realign to conform with government priorities. Alibaba and Tencent were quickly forced to eliminate anti-competitive practices, while games companies had to limit minors to three hours of online play per week. More broadly, the government has signaled softer internet services are out of favor.

Instead, Beijing aims to shift resources to strategically important technologies like chips and enterprise software. The Ministry of Industry and Information Technology has named 4,762 little giants since 2019, many in semiconductors, machinery and pharmaceutical industries. The designation typically comes with lucrative incentives from the central government or provincial authorities, including tax cuts, generous loans and favorable talent acquisition policies.

What the country is trying to promote is more hardcore technology, said Yipin Ng, founding partner of Yunqi Partners, a venture fund that is investing in little giants. In that sense, this is more in line with what they are trying to promote things that makes China more competitive.

Governments from the U.S. to Africa have established programs to support smaller enterprises, but Chinas efforts dwarf those in terms of scale, resources and ambition. Xi, the countrys most powerful leader since Mao, has instituted a half dozen programs that will collectively disburse trillions of dollars in pursuit of economic might, social stability and technological independence.

The U.S. trade war has stiffened the Chinese Communist Partys resolve to build a self-sufficient industry. The countrys vulnerability was exposed when former U.S. President Donald Trumps administration blacklisted national champions like Huawei Technologies Co. and Semiconductor Manufacturing International Corp. That prevented them from buying U.S. components such as chipsets and industrial software, crippling operations.

The little giants concept dates back to at least 2005, when the local government in Hunan province instituted policies to support small enterprises. The central governments powerful MIIT endorsed the Hunan campaign, which included land grants and financial support, as a model for developing the private sector. Local governments in places like Tianjin began their own initiatives.

It was in 2018, with the trade war, that the central government began to seriously push the program. MIIT announced a plan to create about 600 little giants that would develop core technologies. The procedure for winning the designation was designed to foster competition and identify the most promising companies.

Smartphones display the TikTok logo in front of the ByteDance logo in this illustration from 2019. | REUTERS

Candidates apply with a six-page form detailing financial status, number of patents and research accomplishments. In the first round of selection, each province could nominate no more than a dozen companies. The countrys top three tech hubs Beijing, Shenzhen and Shanghai had a combined quota of only 17 candidates.

Guan Yaxin, chief operating officer of Beijing-based ForwardX Robotics, said the process was relatively smooth for her company because it has proven innovations, with 121 patents globally, including 25 in the U.S.

This government endorsement is very helpful when I expand the business because the clients will understand we are not just a random startup, she said.

MIIT has since expanded the program to thousands of companies, with about 1,000 priority little giants at the top of the hierarchy. Members of this rarefied club, which includes Wus Uisee, receive direct funding from the central government. In January, the Finance Ministry set aside at least 10 billion yuan to fund small and mid-sized enterprises until 2025, with the lions share directly financing the priority startups research. The goal is to create 10,000 little giants by 2025.

Its quite clear that this is a selection of companies very much subordinate to Chinas specific industrial policy and needs, said Barry Naughton, a professor and China economist at the University of California, San Diego. They were partially picked because they are good firms, but an equally important criteria is they fit the urgent policy needs of the government right now.

There are substantial risks. The success of Chinas technology industry over the past 10 years came from giving entrepreneurs like Alibabas Jack Ma and ByteDances Zhang Yiming free rein to build their businesses. Flipping the model to focus on the governments priorities risks leading to waste and failure, Naughton said.

These are small companies that are being nurtured because they can potentially be alternative suppliers. How do you nurture them? You throw money at them, he said.

The little giants have become popular targets for venture capitalists, many of whom lost money on portfolio companies during Beijings crackdown. One VC said that some startups in the program have been able to raise capital in the last six months while boosting their valuations by 50% to 75%. Another VC reportedly invests only in companies identified as little giants by the government.

Signs of Alibaba Group and Ant Group are seen during the World Internet Conference (WIC) in Wuzhen, Zhejiang province, China, in Nov., 2020. | REUTERS

Zhang Hui, co-founder of Guizhou Changtong Electric Ltd., applied for the program in Guizhou province in 2020 and received the award last year, based on his companys power equipment technology. The startup soon landed more than 100 million yuan from state-backed funds, and other investors have been knocking on his door to offer additional capital.

Of course, venture investors will chase little giants for investment, he said. It would be a surprise if they didnt.

Venture investments in China hit a record last year despite the crackdown. The value of deals rose about 50% in 2021 to $130.6 billion, according to the research firm Preqin.

EcoFlow Inc., a portable battery startup in Shenzhen, announced a 100 million yuan fundraising led by Sequoia as the company won the little giant label from MIIT. The four-year-old firm now plans an initial public offering in its hometown city within three years.

The government is also making it easier for these startups to go public, another incentive for entrepreneurs and venture investors. China set up a dedicated stock exchange in Beijing last year to help small enterprises raise capital.

Guan of ForwardX Robotics pointed out that founders retain control over their companies even if they participate in such government programs. Her company, which makes mobile robots used in manufacturing and logistics, has about 300 employees and plans to expand into Japan and the U.S. She sees the governments support as a big benefit as little giants try to grow.

Many of them are very small now compared with multinationals, she said. But the government sees the potential for them to become a real giants one day.

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China's 'little giants' are its latest weapon in tech war with U.S. - The Japan Times