what does it mean when uncle sam is one of your biggest shareholders? chip startup xlight is about to find out

Government Investment in xLight Semiconductor Startup

The Trump administration has committed to providing up to $150 million in funding to xLight, a company focused on developing cutting-edge semiconductor technology. This represents the third instance of the U.S. government acquiring an equity stake in a privately held startup.

This move signifies a broadening of a strategy that has placed Washington as a shareholder in American businesses. According to reports from The Wall Street Journal, the Commerce Department will furnish the funds to xLight in return for an equity position, potentially making the government the startup’s majority owner.

Utilizing the Chips and Science Act

The financial support stems from the 2022 Chips and Science Act, and constitutes the inaugural award distributed under this legislation during President Trump’s second term. However, the agreement is still considered preliminary and subject to modifications.

Prior to this, the government had already made equity investments in publicly listed companies including Intel, MP Materials, Lithium Americas, and Trilogy Metals. Furthermore, two startups specializing in rare earth elements also received funding in exchange for equity last month.

Silicon Valley's Reaction

This trend is generating considerable discussion within Silicon Valley, known for its strong libertarian principles. During TechCrunch’s Disrupt event, Roelof Botha of Sequoia Capital humorously remarked that “the most dangerous words in the world are: ‘I’m from the government, and I’m here to help.’”

Other venture capitalists have voiced similar concerns, albeit cautiously, regarding the implications of their portfolio companies facing competition from startups backed by the U.S. Treasury. Concerns also arise when government representatives participate in board meetings.

xLight's Innovative Approach

xLight, a four-year-old company based in Palo Alto, California, is pursuing a highly ambitious goal in semiconductor manufacturing. The company aims to develop particle accelerator-powered lasers – substantial machines – to generate more potent and precise light sources for chip production.

Successful implementation of this technology could potentially disrupt the dominance of ASML, the Dutch company that currently holds a monopoly on extreme ultraviolet lithography machines. ASML’s stock has seen a significant increase of 48.6% this year.

Leadership at xLight

The CEO of xLight is Nicholas Kelez, a veteran in quantum computing and government laboratories, possessing extensive experience with particle accelerators. Pat Gelsinger, formerly the CEO of Intel, serves as executive chairman, joining the venture after leaving his previous role.

Gelsinger expressed his continued commitment, stating to the Journal that this endeavor is “deeply personal” to him. He is also a general partner at Playground Global, which led xLight’s $40 million funding round earlier this year.

Targeting Advanced Wavelengths

xLight’s ambitions extend beyond merely competing with ASML. While ASML’s machines operate at wavelengths around 13.5 nanometers, xLight is focused on achieving 2 nanometers. Gelsinger asserts that this technology could enhance wafer processing efficiency by 30% to 40% while significantly reducing energy consumption.

Upcoming Discussions

Both Kelez and Gelsinger are scheduled to speak at TechCrunch’s StrictlyVC event in Palo Alto, where the government’s investment will undoubtedly be a topic of discussion.

National Security and Industrial Policy

Commerce Secretary Howard Lutnick emphasizes that this investment is driven by national security interests and the pursuit of technological leadership. He believes the partnership could “fundamentally rewrite the limits of chipmaking.”

Debate continues regarding whether taxpayer-funded equity stakes represent forward-thinking industrial policy or a form of state capitalism. However, even critics acknowledge the existing geopolitical landscape.

Botha, identifying as a “sort of libertarian, free market thinker,” conceded that industrial policy is justifiable when national interests are at stake. He explained that the U.S. is adopting this approach due to competition from other nation-states employing industrial policy to bolster their strategic industries.