A British chip-making startup funded by the CIA’s venture capital firm says that if the UK government doesn’t come up with a supportive semiconductor strategy, it may shift its operations abroad.
(Bloomberg) — A British chip-making startup funded by the CIA’s venture capital firm says that if the UK government doesn’t come up with a supportive semiconductor strategy, it may shift its operations abroad.
Pragmatic Semiconductor Ltd. makes tiny, flexible circuit boards that can be embedded into almost anything, from packaging to clothing. Its founder Scott White says the UK’s efforts to fund more domestic chip production may fall short of what the Cambridge, England-based company needs to build more factories.
White said he may turn to the US, where the $52.7 billion CHIPS Act provides federal funding and tax breaks to semiconductor companies, or take on more investment from China.
Rising geopolitical tensions between China and the West have caused a schism over ownership and access in the semiconductor industry. The so-called ‘chip war’ has led to sanctions, like those imposed by the White House on Chinese telecommunications giant Huawei Technologies Co., and the UK’s recent decision to order Shanghai-listed Wingtech Technology Co Ltd. to sell most of its stake in a Wales-based semiconductor factory, citing national security.
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Since a $125 million Series C funding round in December, Pragmatic has been part-owned by In-Q-Tel, the Central Intelligence Agency’s venture capital firm. It’s also received investment from the UK government’s National Security Strategic Investment Fund. The company is also backed by Hangzhou-headquartered Puhua Capital, though White said he’s intentionally kept the level of Chinese funding low.
Accepting both western and Chinese funding may become more difficult. If Pragmatic opts to expand in the UK, which is more likely if the government offers generous subsidies in its semiconductor strategy, the company will set limits on how much Chinese investment it will take, White said.
“It’s a tricky balancing act,” White said in an interview. “Because there isn’t the ability to raise funding for this kind of business effectively in the UK, you end up going to foreign investors.”
In January, Bloomberg reported the UK would provide taxpayer funding for domestic chipmakers in its long-awaited strategy, according to officials familiar with the plans.
Without sufficient UK backing, White raised the prospect that Pragmatic could re-base operations or list overseas in the future, which would add to an exodus of British business symbolized by the decision of chip software giant ARM Ltd. to list in New York rather instead of London.
“If all of our manufacturing ends up being overseas and all of our customers are overseas, it just wouldn’t make any sense,” White said of listing on the London Stock Exchange.
Chinese Investment
Along with other British chip executives, White recently traveled to Washington to explore the possibility of funding from the US CHIPS Act.
In contrast to vast and expensive silicon fabs, which can cost billions of dollars, Pragmatic plans small, low-cost plants, because its bendy chips are made of a different material, indium gallium zinc oxide. The goal is to open more than a hundred of these fabs around the world over the next decade, White said.
White didn’t disclose the size of Puhua’s stake but public filings say it owned 43,000 C shares as of October 2022, implying about 4.5% ownership before the latest funding round. The Chinese investors are interested in having Pragmatic fabs in China, White said.
Puhua didn’t respond to a request for comment.
NSSIF and In-Q-Tel are “comfortable” with the level of Puhua’s shareholding, but Pragmatic may have to weigh future Chinese investment against its expansion plans, White said.
“Any foreign direct investments in areas of national and security defense interest are made subject to requirements set out in the National Security and Investment Act 2021,” said a spokesperson for the British Business Bank, the umbrella organization for NSSIF and British Patient Capital, both of which invested in Pragmatic. In-Q-Tel didn’t respond to requests for comment.
Other investors include fellow Cambridge-based semiconductor firm ARM, Saudi Aramco, and packaging giants Avery Dennison Corp. and Amcor Plc. White called the latter firms strategic investors, because Pragmatic’s small flexible processors are suited for radio tagging the packaging of fast-moving consumer goods, which he said is the company’s “biggest customer demand pool” at the moment.
–With assistance from Henry Ren.
(Updates with context in eighth paragraph. A previous version corrected White’s role in a subheading)
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