Founder stories: Enabling quantum breakthroughs, one photon at a time
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Sparrow Quantum aims to unlock the potential of quantum technologies. On a mission to change the world with premier single-photon components for quantum applications and technologies, the startup recently secured €4.1m in seed funding, led by venture capital firm 2xN.
We sat down with entrepreneur and CEO Kurt Stokbro to learn more about his experience building a VC-backed business, the challenges he has been facing and the learnings he made along the way.
You are the CEO of Sparrow Quantum, a quantum technology company. What is the mission you are working towards?
At Sparrow Quantum, we design, develop, and produce high-quality single-photon components for quantum applications and technologies such as quantum computing.
For generative artificial intelligence, ChatGPT is the perfect example. While there is huge potential in this, it is very expensive to develop and run at the moment - which is a major problem when it comes to realising other use cases. One of the reasons it is so expensive is that generative AI requires extensive computing power and data sets for training. However, through the use of quantum technology, this might become a significantly more efficient training process with much less training data required to achieve the same level of ability, therefore enabling AI systems beyond our imagination.
It’s exciting that our single-photon components play a key role in achieving developments in quantum technology like this one! And there are so many other areas where quantum technology can change the world.
You have a background in physics within the field of nanomaterials. How did you become a founder? Was it something you always wanted to be?
I wouldn’t say I planned to be a founder - but the environment I was in introduced me to the idea.
I have a PhD in electronic structure theory from the Technical University of Denmark (DTU) and for a long time, my background in academic research was also the main focus of my career. At the time, I was developing a tool that was used for the simulation of electrical currents in nanostructures - and the paper on this got quite a lot of interest. Being at DTU, I was also surrounded by many (first-time) founders. That’s when I started developing an interest in commercialising this idea. I didn’t really know how to turn it into a business at the time, but looking at other founders around me, I thought to myself: “I can do that too”. And so I did!
Sparrow Quantum just closed €4.1m in seed funding, led by venture capital firm 2xN. Congratulations! What were some of the challenges you faced along the way? And how did you manage to overcome these?
My very first company was a software company. In contrast, Sparrow Quantum is a hardware company - which is a challenge in itself. A hardware company requires a significantly higher start investment because you need labs, equipment etc. So raising that level of funding was the first obstacle we had to overcome. But we were lucky because we secured a grant from the European Innovation Council (EIC Accelerator). It was a substantial amount of funding in the first place - but it is also highly recognised and therefore almost acted as a “quality stamp” to other (potential) investors. So for us, it made things a lot easier from then on.
The second challenge was getting everything prepared from a company perspective. Investors look at the plan you have for taking your product to market - and you need to support this narrative by showing you have the right building blocks in place, from finance and operations to the technology and the team. The most difficult one for us was the team: we needed to demonstrate that we had the right team to bring our vision to life - and getting the necessary internal alignment to achieve this was more difficult and time-consuming than we initially thought.
As a serial entrepreneur, you have gone through fundraising multiple times. What changes did you observe throughout your latest funding process when interacting with investors?
I started my first company back in 2002. If I compare our fundraising journey back then to what it is like just now, one of the things that stands out to me is the time it takes to complete a funding round. A primary driver, from my perspective, has been the due diligence process here. Today, investors are more thorough in assessing the evidence a founder provides to back up the vision and plan to grow their startup. This ultimately leads to you having to provide a lot of different information to back up your financials, for instance. In return, that has a major impact on the time it takes to complete and receive your funding round.
Not only are you a serial entrepreneur, but you also support other startups as an investor. How has this mix of “experience” impacted how you feel about running a startup?
As CEO of Sparrow Quantum, I now have to focus more on how I spend my time in the company's interest. I have also been acting as an investor or board member for other companies - but I am massively limiting my involvement here for that reason.
Sparrow Quantum is my number one priority and there is a lot of responsibility. Having run my own company in the past and acting as an investor has undoubtedly given me a level of experience that is now very beneficial to me. But running a company can still be scary and knowing what can go wrong based on my own experience is definitely adding to that in some moments. But I also know that I am not alone - I have a great team I get to work with, which really makes the difference to me.
Having seen the best of both worlds, being a founder and supporting other startups as an investor, what advice would you want to share with other founders looking to fundraise?
Building your own company, you should be prepared that things can go wrong - and they will. That’s very natural, so it’s even more important to pick your investors carefully. You should think about them as being part of your company. It needs to be someone you feel you can trust and who is supportive - even when things may not go to plan. So founders should definitely listen to their gut feeling when it comes to potential investors.
FAQs
All the answers you need for all the questions you’ve got.
(But also TL;DR)
How should a startup business prepare its budget?
To prepare a budget for your startup, begin by listing all potential expenses you anticipate in starting and operating your business. Next, organise these expenses into categories. After that, estimate your monthly revenue and calculate the total costs required to start and run your business.
What are the key steps to creating an effective budget?
Step 1: Determine and track your income sources.
Step 2: Make a list of your cost. Include both fixed and variable costs.
Step 3: Set achievable financial goals.
Step 4: Develop a plan to meet those goals.
Step 5: Put everything together to build your budget.
Step 6: Regularly review and revise your forecast to ensure it remains effective.
What does capital budgeting entail for a startup?
Capital budgeting for a startup involves allocating a set amount of funds for specific purposes, such as purchasing new equipment or expanding business operations. This process is crucial as it supports making strategic investments that are expected to yield long-term benefits for the startup.
FAQs
All the answers you need for all the questions you’ve got.
(But also TL;DR)
How can a startup forecast its cash flow?
To forecast cash flow for a startup, follow these steps:
Step 1: Create a sales forecast by estimating the revenue your products or services will generate over the forecast period.
Step 2: Develop a profit and loss forecast to understand your expected expenses and income.
Step 3: Prepare your cash flow forecast, which involves calculating expected cash inflows and outflows. This can often be done for longer-term by using assumptions around payment terms to forecast a Balance Sheet, and using the movements in Balance Sheet and Net Profit/Loss to calculate the cashflow.
Step 4: Consider ways of improving cash flow by improving your invoicing methods, considering short-term borrowing, and negotiate better payment terms to manage cash flow effectively.
What is the most accurate method to forecast cash flow?
The most accurate method for forecasting cash flow in the short-term is the direct method, which utilises actual cash flow data. In contrast, the indirect method is better suited for longer term forecasting using projected balance sheet movements and income statements to estimate future cash flows.
How is cash flow calculated?
Cash flow is calculated by deducting cash outflows from cash inflows over a specific period. This calculation alongside forecasts of future cash flow helps determine if there is sufficient money available to sustain business.
How do you project cash flow over three years?
To project cash flow over a three-year period, undertake the following steps:
Step 1: Collect historical financial data.
Step 2: Identify all expected cash inflows, which could include revenue, investment, grant income, etc.
Step 3: Estimate all anticipated cash outflows including expenses, suppliers that need to be paid, investments into assets, debt repayments, etc.
Step 4: Calculate the net cash flow by subtracting outflows from inflows.
Step 5: Consider your cash reserves and explore financing options if needed.
Step 6: Regularly review and adjust your projections to ensure accuracy and relevance.
FAQs
All the answers you need for all the questions you’ve got.
(But also TL;DR)
When should a startup consider hiring a CFO?
A startup should think about hiring a Chief Financial Officer (CFO) when it begins to experience rapid growth, finds it challenging to manage finances, or needs to navigate complex investment scenarios. A seasoned financial professional can provide the necessary expertise to handle these challenges effectively.
What are the indicators that my business might need CFO support?
You might need to hire a CFO or consider outsourcing this role if you notice any of the following signs: a decrease in gross profit margins despite increasing revenue, uncontrolled business growth, lack of cash reserves despite having a financially successful year, or a halt in business growth.
Does my startup really need a full-time CFO?
Recruiting a full-time CFO is an expensive hire. Given budget constraints and the need to prove the viability of your business idea, founders will often need to prioritise investing into building and commercialising their product. That's where CFO services for startups are a cost-effective solution for founders looking to take their financial management to the next level.
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