Report: UK Encryption Startup Arqit Overstates Its Outlook

The viability of U.K. cybersecurity startup Arqit’s proposed approach to encryption technology is overstated, The Wall Street Journal reported on Monday (April 18), citing unnamed sources and documents seen by the news outlet.

The report said the startup fed investors spoonfuls of optimism regarding future revenue and the workability of its system.

The company went public on Nasdaq last year via a special purpose acquisition company (SPAC) on the basis that its proprietary encryption system would protect the defense industry, corporations and consumers.  

Arqit’s founder and CEO David Williams told investors at the time that his company, Arqit Quantum Inc., was sitting on a pile of revenue and was ready “for hyperscale growth,” according to the WSJ.

Now, cybersecurity pros in the U.S. and the U.K. are having serious doubts that Arqit’s system will live up to its promised hype anytime soon. The startup’s encryption system might only be good for very niche uses and won’t be able to protect systems against next-generation quantum computers. 

Related: Alphabet’s Quantum Tech Group Sandbox AQ Goes Solo

Its main product upon going public was unable to encrypt anything in practical use, the sources told WSJ. However, Arqit disagrees with the premise that its encryption system at the onset was merely a prototype.

“This was a live production software release and not a demonstration or trial,” a company representative said, per the report. “It was being used by enterprise customers on that day and subsequently for testing and integration purposes because they need to build Arqit’s software into their products.”

Because Arqit went public with a SPAC, it isn’t subject to the rules about disclosure and marketing practices in the same way as initial public offerings (IPOs). The SPAC process gives companies leeway to use forecasts of future revenue and profit.

See also: SEC: Investors Can Sue Over Inaccurate SPAC Forecasts

British cybersecurity officials questioned the viability of Arqit’s proposed approach to encryption technology in a high-level evaluation they privately shared with the company in the summer of 2020, according to the sources.

Arqit’s chief revenue officer resigned in April 2021 after raising concerns that Williams was releasing revenue forecasts to potential investors that were not realistic, sources told the WSJ.