Quantum computing company Rigetti began trading on the Nasdaq in March 2022. But it bypassed the typical fanfare of a startup IPO. Instead, Rigetti merged with a special-purpose acquisition company, or SPAC, a cash-rich shell corporation already listed on the stock exchange. The deal pumped $261 million into Rigetti, which said the funds would be used to develop quantum processors and expand its operations, but the result has not been an unmitigated success.

In recent weeks, Rigetti’s stock has traded for less than $1, a slump of about 90 percent from its initial listing price. And the company has not been alone in free fall. In 2021 and 2022, a few quantum computing companies went public via SPAC mergers. D-Wave, which listed in August of 2022, has seen its shares drop 85 percent in value. IonQ’s stock surged in November 2021 but is down 60 percent from its debut, a similar slide to the profitable but troubled giant Meta over the same period.

Rigetti’s strategy of going public despite its nascent technology and business represents a trend among startups working on ambitious technology. Alongside the quantum startups, AI and self-driving vehicle companies have taken a similar course. The SPAC model rose in popularity as low interest rates prompted investors to look for new investment opportunities, and it provided a way for companies to dodge some of the vetting in the IPO process. SPACs also give new companies faster access to much-needed capital. 

But the golden era for SPACs is waning, and share prices are now tumbling. Rising inflation and interest rates have led investors to pull money from SPACs premerger, and the maneuver faces increased regulatory scrutiny.

Tech stocks overall have taken a hit in the past year, as the pandemic boom gave way to correction and layoffs. But tech SPACs have particularly tanked, with many trading below $1 at the close of 2022. And the tech-heavy companies that merged with SPACs are often not yet profitable. Their slide raises questions about how companies pursuing technology that won’t reach its potential for years should move forward. 

“I think as the market goes, so goes SPACs,” says Usha Rodrigues, a professor in the University of Georgia Law School and a SPAC expert. “Too many SPACs went public and are looking for a target or looking to unwind.” The crunch has inspired some unusual moves. Last week, vehicle-data company Wejo, which has lost 90 percent of its value since going public via a SPAC in 2022, said it would merge with a second SPAC after running short on cash.

For Rigetti, going public via SPAC added to its cash balance and allowed it to “better compete against large quantum players like IBM and Google,” Brad Williams, a company spokesperson, told WIRED in an email. He acknowledged that tech stocks have faced challenges over the past year but said Rigetti still has a “strong balance sheet.” He said the company is reviewing its business plan and remains “confident that we will continue to close the gap in demonstrating narrow quantum advantage going forward.”

At the end of September, Rigetti reported $212 million in assets and a net loss of $49 million for the year to date. The SPAC deal was originally expected to net $458 million, pushing Rigetti’s valuation to about $1.5 billion, but after some investors pulled out it raised not much over half the expected amount.

Quantum computing is a particularly precarious investment field. The technology, meant to accelerate computer processing by harnessing quantum mechanics to solve complex problems, will likely not be widely useful for years. Standards in pricing and business practices have yet to be solidified. And although companies such as Volkswagen are experimenting with quantum computing, products and demand are not yet well-established.

“In some sense, SPACs are ideal for a company that has huge potential but is going to take some time to mature,” D-Wave CEO Alan Baratz told Fast Company about its merger in August 2022. “With a SPAC, you’re able to tap into the funding sources in the public markets to accelerate your growth and do it based on the future potential.” As of late September, D-Wave reported $39 million in assets and nearly the same in net losses for the first nine months of 2022, but the company has signed a deal with a capital fund to provide an extra $150 million over three years. The company did not provide a comment for this story.

Companies are standing by the SPAC paths they took, and some have significant reserves. Peter Chapman, president and CEO of IonQ, says the company merged with a SPAC to raise the “substantial” amount of capital it needed. The company reported that in September it had $556 million in cash and investments and losses of $30 million for the year to date.

“IonQ is making outstanding advancements at a time when other companies in our field are slowing down,” Chapman told WIRED in an email. The company is still hiring for dozens of positions, has worked with with Dell and GE, and has enough cash to keep moving ahead, Chapman says. “Based on our achievements to date, we continue to believe that the money we raised last year will fund IonQ for the foreseeable future.”

Quantum computing projects at giants like Alphabet and IBM can draw on revenues from their established businesses. But smaller ventures going all-in on quantum need other sources of cash to ensure their long-term survival. SPACs were an appealing money source, but some companies that tapped them may be caught up in the fallout.

“The unfortunate thing with SPACs is they allowed companies to rush to the public markets before they should’ve,” says Charles Kane, a lecturer in international finance and leadership at the Massachusetts Institute of Technology. “All SPACs aren’t bad, but a lot of them were bad because they should never have been public to begin with.”

Kane says that could spell trouble not just for those who bought stocks, but for the prospects of companies trying to develop expensive, labor-intensive technologies. “Their access to capital is more limited once they’re a public company,” says Kane. “That will impact their ability to develop further.” 

Not everyone is so gloomy. Tony Uttley, president and COO of Quantinuum, a quantum computing company that did not merge with a SPAC but counts industrial conglomerate Honeywell as its largest shareholder, says the drop-off in stock price of some competitors doesn’t spell an end for the quantum computing industry.

Investments are still coming in, and interest in the technology’s potential remains, Uttley says. In 2021, investments in quantum startups doubled from the prior year, up from $700 million to $1.4 billion, McKinsey reported, with more than 70 percent of that coming from venture and private capital entities by the second half of the year. And governments are funding quantum development in China and the European Union.

Even outside the SPAC realm, there are challenges. The quantum tech industry is facing a talent shortage. Startups are racing to develop these technologies while also facing steep financial hurdles. Uttley says those can be cleared. “This is really early days in this technology,” he says. “Nobody argues that this isn’t eventually going to be gigantic. It’s a question of: How do we get between where we are today and there?” If or when the era of useful quantum computing finally arrives, the quantum SPAC slump may look like barely a blip.