What does it mean when Uncle Sam is one of your largest shareholders? Chip startup xLight is about to learn

The Trump administration has agreed to contribute up to $150 million xLighta semiconductor startup developing advanced chip-making technology, marking the third time the U.S. government has taken an equity position in a private startup and further expanding a controversial strategy that has put Washington on the U.S. corporate capitalization charts.

The Wall Street Journal reported on Monday that the Commerce Department will provide the funding to xLight in exchange for an equity stake that will likely make the government the startup’s largest shareholder. The deal uses funding from the Chips and Science Act of 2022 and represents the first Chips Act award in President Trump’s second term, though it remains preliminary and subject to change.

Past government equity investments under the Trump administration include publicly traded companies Intel, MP Materials, Lithium Americas and Trilogy Metals. Two rare earth startup it also secured financing in exchange for equity from the Commerce Department last month.

You can imagine how this all goes down in Silicon Valley, where the libertarian ethos runs deep. At TechCrunch’s signature Disrupt event in October, Sequoia Capital’s Roelof Botha joked what could be the understatement of the year when asked about the trend:[Some] of the most dangerous words in the world is: “I’m from the government and I’m here to help.”

Other VCs have similarly expressed concerns, if quietly, about what it means when their portfolio companies are suddenly competing with start-ups backed by the US Treasury, or even sitting across the table from government representatives at board meetings.

The four-year-old Palo Alto, Calif., company at the center of this experiment is trying to do something really bold in semiconductor manufacturing. XLight wants to build particle-accelerating lasers—machines the size of a football field, mind you—that would create more powerful and precise light sources for making chips.

If it works, it could challenge the near-total dominance of ASML, the Dutch giant that has been publicly traded since 1995 and currently enjoys an absolute monopoly on extreme UV lithography machines. (Its shares are up 48.6% this year.)

xLight’s CEO is Nicholas Kelez, a veteran of quantum computing and government labs who obviously knows his way around a particle accelerator. Helping that venture as executive chairman is Pat Gelsinger, the former Intel CEO who was shown the door late last year after his ambitious plans to revive manufacturing failed to materialize.

“I wasn’t done yet,” Gelsinger — who is also a general partner at Playground Global, which led the startup 40 million dollars round of funding this summer — he told the Journal, adding that the effort is “deeply personal” to him.

Indeed, xLight doesn’t just want to compete with ASML but go much further. While ASML’s machines operate at wavelengths of about 13.5 nanometers, xLight targets 2 nanometers. Gelsinger claims the technology could boost wafer processing efficiency by 30% to 40% while using far less energy.

As it happens, both Kelez and Gelsinger will be at TechCrunch’s StrictlyVC event on Wednesday night in Palo Alto, where the government’s support will no doubt feature. (You can still grab a spot here.)

Commerce Secretary Howard Lutnick, for his part, insists it’s all in the service of national security and technological leadership, saying the partnership could “fundamentally rewrite the boundaries of chip manufacturing.” Critics will continue to question whether taxpayer-funded equity stakes represent visionary industrial policy or state capitalism with a patriotic sheen, though even skeptics acknowledge the geopolitical reality.

At least Botha, who described himself to Disrupt as “a kind of libertarian, free-market thinker by nature,” conceded that industrial policy has its place when the national interest demands it. “The only reason the U.S. is resorting to this is because we have other nation states that we’re competing with that are using industrial policy to promote their industries that are strategic and perhaps unfavorable to the U.S. in long-term interests.”