Sovereign funds are becoming the new venture capitalists
They are especially suited for investing in high-risk, capital-intensive and long-horizon tech ventures
IN JULY this year, Pat Gelsinger, a former Intel Corporation chief executive officer, called for a US sovereign wealth fund (SWF) to keep America’s technological edge.
Just a month later, one such fund materialised under President Donald Trump’s administration, owning 10 per cent of Intel – the only American company manufacturing advanced chips on US soil.
A few months after that, the Trump administration announced a plan to take an equity stake in Gelsinger’s chip startup, xLight, which would receive up to US$150 million to develop ultra-precise lasers for squeezing more circuits onto semiconductors.
The startup’s plan is audacious: xLight plans to build massive “free-electron lasers” powered by a particle accelerator to create a more powerful and precise light source for use in semiconductor chip fabrication plants.
The most advanced lasers used by ASML, the current industry leader, produce extreme ultraviolet light at a wavelength of around 13.5 nanometres (nm). xLight’s lasers are targeting much more precise wavelengths – down to 2 nm.
New global trend
The xLight investment shows that the SWF under the Trump administration is enthusiastic about early investments into tech startups.
It is joining a global trend of sovereign investment funds becoming new, powerful venture capitalists – actively scouting startups themselves, investing earlier and even creating their own standalone venture capital (VC) arms such as Taiwania Capital, bankrolled by Taiwan’s SWF.
To build and scale domestic artificial intelligence (AI) capabilities, the UK government launched its £500 million (S$866.1 million) Sovereign AI Unit in July 2025.
And in 2024, MGX – the newly established tech investing company affiliated with Mubadala, a United Arab Emirates SWF – joined OpenAI’s mega funding round of US$6.6 billion as a major investor.
Not to be outdone, Saudi Arabia’s trillion-dollar Public Investment Fund formed Humain in 2025. The AI-focused operating subsidiary invests in and delivers AI-native platforms across four core layers: infrastructure, cloud, data and models, and applications.
Qatar, too, is joining its Gulf neighbours in the global AI race. It December, it set up national AI firm Qai under its SWF, the Qatar Investment Authority (an investor in Anthropic).
These SWFs’ ample resources, preference for lower profiles and long time horizons make them the perfect shareholders and strategic partners for tech startup founders.
In the case of xLight, the US$150 million investment will help the laser venture meet its goal of producing its first silicon wafers by 2028, Gelsinger said. But that does not sway the US government’s investment risk appetite.
“This partnership would back a technology that can fundamentally rewrite the limits of chipmaking,” Commerce Secretary Howard Lutnick said in the press release announcing the investment.
This underscores that the long-term capital of SWFs can bridge the important financing gap between research breakthroughs and scalable technologies.
Focus on hardware over software
Another remarkable aspect of the xLight case is that it is an investment in AI hardware – or advanced manufacturing, in a broader context. In contrast, Silicon Valley mostly chases software startups, not the high-barrier, capital-intensive “hard tech” innovations.
Roughly 90 per cent of US VC today flows into software – an investment pattern optimised for nimble businesses and quick returns, but not strategic for national power, based on an analysis by the Institute for Security and Technology. Therefore, the US SWF also fills the hardware gap in the VC capital market.
It’s probably no coincidence that, across the Pacific, Chinese SWFs are also focusing on AI hardware startups.
In early 2025, Beijing launched a 60.1 billion yuan (S$11 billion) national AI fund. Its main shareholder is the National Integrated Circuit Industry Investment Fund III, which is backed by China’s Ministry of Finance and other state-owned enterprises, CNBC reports indicated.
Official statements about the AI fund have said that one of its main focuses will be “embodied AI”.
Just like in the mobile Internet revolution last decade, in the AI age the US leads in fundamental research, but it is China that excels at applying tech – especially AI hardware such as intelligent robotics and other physical AI devices, where the “made in China” manufacturing capabilities are a unique advantage.
Bridging the financing gap
Overall, global SWFs are the unicorn-makers behind the scenes. Their tech investments are on a par with private equity and VC funds, but often with a strategic objective on top of financial returns.
That’s why they are especially suited for investing in high-risk, capital-intensive and long-horizon tech ventures, which often struggle to raise capital.
Therefore, the US SWF may provide important capital to bridge the financing gap in the tech venture world. It’s emerging as the financier for the hard-tech startups, the technologies of which are vital to national competitiveness, but whose risk, scale and time dissuade private investment. Therefore, it would not be a surprise if the US SWF becomes a leading investor in the burgeoning quantum computing field.
Quantum computing firms including IonQ, Rigetti Computing and D-Wave Quantum are reportedly in talks to give the American government equity stakes in exchange for federal funding (at a minimum of US$10 million each).
Quantum computers are viewed as a critical next-generation technology, but it’s still an emerging one facing big hurdles.
Before quantum computing is fully proven for widespread use, the US SWF could serve as a patient, long-term venture partner for the researcher-founders. OMFIF
The writer is executive director of the Global Public Investment Funds Forum and adjunct professor at NYU School of Law. He is the author of The Hunt for Unicorns: How Sovereign Funds are Reshaping Investment in the Digital Economy.
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