September 28, 2023

US eyes British startups in chip sovereignty bid

US officials are encouraging UK chip startups to move their ops across the pond to scoop some $50bn in subsidies

The US is trying to boost its production of semiconductors

US officials are encouraging UK chip startups to move part or all of their operations to America in order to benefit from more than $50bn in American government funding and subsidies. 

Several UK-based startups that spoke to Sifted say federal officials, as well as those from states including Arizona, Nevada and North Carolina, had told them they should apply for funding under the US Chips Act, which is pumping $53bn into R&D and manufacturing of semiconductors. 

One of the requirements of the funding is that some of their work would have to be carried out in the US. 


The UK has 88 startups working on semiconductor technology, the most in Europe, with many of them based in Oxford, Cambridge and south Wales, according to Dealroom

They mostly specialise in compound semiconductors, an alternative to silicon-based chips, and span everything from quantum to laser technology. Almost three quarters of Europe’s chip startups are at seed stage — meaning they’re hungry for cash. 

Dr Simon Thomas, founder and CEO of Paragraf, a Cambridge-based startup developing graphene-based semiconductors, says US authorities at the federal and state levels have reached out to him and many other founders in the Cambridge region.

“They are approaching a lot of companies — we are not a special case. They see the innovation that is going on in the UK, they see the capability, and it’s definitely not because Paragraf is special. It’s their goal: to attract all the technologies they possibly can that fit within their portfolio of targets to go to the US,” he says. 

Graphcore, an AI chip designer unicorn based in Bristol, has also had “multiple approaches” from the US, says chief executive Nigel Toon, and so has Pragmatic Semiconductor, according to its founder Scott White. The latter is planning to bid for support to open several semiconductor fabrication plants, commonly known as fabs, across the US to produce non-silicon chips.

“We’ve had a number of discussions with the US government, the Department of Commerce and various senators,” White says. 

“[US] states have obviously seen the opportunity here of making sure that if there is going to be investment in semiconductor manufacturing capacity, then all things being equal, they’d like it to be in their state. So they’ll be pretty, pretty proactive in trying to attract companies.”

Arizona, Nevada and North Carolina have all got in touch with Paragraf, Thomas says. The state of California has also been very supportive, and has involved Paragraf’s US entity in San Diego in trade missions overseas, he adds.

Partnering up

The US cash pot includes $50bn administered by the Department for Commerce, of which $39bn will support semiconductor manufacturing, equipment and materials, through grants, loans and loan guarantees. 

Companies have started bidding for the first tranche of this funding, targeting current-generation semiconductor technology. 


The second funding opportunity will launch later this autumn and will offer smaller grants, aimed at materials suppliers and equipment manufacturers planning to invest less than $300m in the US. A third tranche will fund R&D facilities that businesses may require to develop future products.

An official from the US Department for Commerce says the department has set up two teams to engage with foreign governments and companies respectively, to attract capabilities the US lacks.

They say there have already been “a number of conversations” with the UK government to understand how their national strategies could complement each other and avoid unconstructive competition.

“With our UK counterparts, we’ve had very frank conversations and I think they are very enthusiastic about what areas we are trying to pursue,” they say. “We certainly find what the UK is focusing on to be very complementary to what we are doing.”

“We don’t think it is a net zero-sum-game,” the official adds. “We think producers can continue to produce in their home countries and also expand their operations in the United States.”

The US efforts to attract UK businesses, however, have triggered mixed emotions in Britain. “It’s very annoying,” says an employee at a British venture capital firm that invests in semiconductors. “But ultimately, a lot of these companies will maintain a presence in the UK.”

White says Pragmatic’s business model — which relies on building lots of smaller, cheaper fabs than those run by TSMC and Intel — means his company will aim to grow in the UK and the US in parallel. But he warns that several other British startups dependent on large foundries will face a “black and white decision”.

“If you are subject to the normal dynamics of semiconductor manufacturing, where you’re gonna have to build it all in one location, then I think they’ve got a much more challenging decision,” White says.

The US Chips Act will strengthen the pull that the US already exerts over deeptech and semiconductor companies, agrees Mark Lippett, chief executive and founder of XMOS, a Bristol-based startup that designs chips for manufacturing in Taiwan by TSMC. 

“If you can’t raise the capital that your company needs in order to thrive, then you have to look elsewhere. And if that means that you need to move the company either to US Inc or move more of your activity to the US then so be it,” he says.

The EU, meanwhile, wants to mobilise €43bn in public and private investments with its Chips for Europe Initiative, financed by the EU’s Horizon Europe R&D scheme and the Digital Europe Programme. British chips startups will be able to apply to funding calls under Horizon from January 2024, according to a Commission spokesperson.

But Paragraf’s Thomas says EU officials have not been as engaging as those from the US.

“We will genuinely go where more success can be generated. So I cannot say ‘yes we are definitely going to be headquartered or move to the US’ but I can’t say no either,” he says. “It’s really clear what the US is doing. And it’s really unclear what we are doing in the UK. And the longer the lack of clarity goes on, the less we can do about staying here.”

Hidden risks

Investors acknowledge that raising US capital might help UK semiconductor startups to attract the attention of VC firms in Europe, which have traditionally been reluctant to support chips manufacturing due to the high amounts of cash required. 

But one London-based VC warns that some founders in the sector may be unaware that the law bans British VC firms working with venture capital trusts from investing in firms with a US top-code, because these schemes benefit from tax incentives aimed at nurturing UK businesses. 

“What might look like an insignificant change in the short term can have really big effects as the company scales,” says the VC, who asked to remain anonymous.

Some within industry and the UK government remain sceptical of what they see as apocalyptic warnings from Thomas and other outspoken founders, and say these types of messages are designed to lobby British ministers to pump bigger quantities of taxpayers’ money into chip manufacturing. 

They point to the example of IQE, a compound semiconductor manufacturer, which acquired four sites in the US but kept its HQ in Cardiff and manufacturing facilities in Newport.

UK fabless chip startups such as XMOS, which require smaller investments than manufacturing firms, may still resist the allure of the US, says Lippett. He believes there’s a “kernel of talent in the UK that is proud of British engineering and wants to build successful UK companies” and “are prepared to work with the comparative hardships of building tech companies here because they think it is important for the UK and that will always remain the case”.

A spokesperson for the UK’s Department for Science, Innovation and Technology says the government’s strategy, which pledged £1bn for the industry over a decade, is “doubling down” on Britain’s strengths in research, design and compound chips.

“British semiconductor firms of all sizes continue to go from strength to strength, expanding globally as they do so. These firms build on their strong UK foundations to contribute to global innovation, while keeping their roots firmly in Britain to access our world-leading talent, research and specialist semiconductor ecosystem,” they say.

Cristina Gallardo

Cristina Gallardo is a senior reporter at Sifted based in Madrid. She covers tech sovereignty and Iberia. Follow her on X and LinkedIn