By Heather Somerville | Photos by Jonah Reenders for WSJ
A San Francisco startup has raised more than $100 million for technology that could upend the global semiconductor industry -- if it proves out.
Founded by a protégé of investor Peter Thiel, Substrate says it has reinvented a key link in the microchip production process and plans to use its innovation to build new manufacturing facilities in the U.S. Its ambitious plan has received attention from the Trump administration, which views reducing the country's dependence on overseas suppliers as an urgent national security priority.
The funding values the company at more than $1 billion. Firms that backed Substrate include Thiel's Founders Fund, General Catalyst and In-Q-Tel, a government nonprofit that funds new technologies for U.S. defense and intelligence agencies .
Yet even with the investment, the startup faces doubts from government scientists and across the semiconductor industry about whether it can reproduce the complex, capital-intensive semiconductor supply chain in anything like the three-year timeframe it has targeted for producing its first chips.
In a warehouse space in San Francisco's South of Market neighborhood, Substrate co-founder James Proud disclosed what he describes as the company's core innovation: a compact machine that uses ultra-short-wavelength laser light to etch intricate and microscopic patterns on silicon wafers. That process, known as lithography, is what dictates the power and performance of chips.
Substrate is positioning itself as a rival to the sole global manufacturer of advanced lithography machines: the Dutch behemoth ASML. Industry analysts say the high costs and enormous technical challenges in lithography to produce the most advanced chips give ASML a 10-year head start over any would-be competitors.
Proud, who started Substrate three years ago after running startups that made sleep-tracking devices and supply-chain software, says he is aware his plans will strike many in the semiconductor business as wildly implausible.
"If I had come from the existing industry, I probably wouldn't believe it's possible because I'd probably know too much about how hard it's going to be , and it was and it has been immensely hard," he said.
Proud proposes reconstituting semiconductors into a vertically integrated industry where one company owns the entire process. That is the antithesis of how the industry has operated for close to the past half-century. Industry veterans have said vertical integration is unsustainable for an industry that has such high capital and research and development needs.
"The only way to fix this game is to take a completely different approach, take a blank slate," said Paul Kwan, managing director at General Catalyst, a large Substrate investor. "That is how you can get over the audacity and insanity of it all."
ASML spent about 25 years and more than $10 billion developing its extreme ultraviolet (EUV) lithography, which allowed for large-scale production of advanced chips crammed with more and smaller transistors. It sells its devices, which can cost more than $350 million apiece, to semiconductor manufacturers such as Taiwan Semiconductor Manufacturing and Intel.
Proud says Substrate's device can produce results comparable to those of ASML's most advanced machines. To support that claim, the company provided The Wall Street Journal with images of chip designs printed at nanometer scale.
But experts on the technology say being able to print at that scale represents a task that likely takes a decade to master -- and is only one challenge in a daunting chain of technological hurdles. For advanced semiconductor manufacturing, it would need to be able to maintain the same accuracy across much larger areas of wafer and run at high speeds. Chinese companies have been trying for years to clear those hurdles.
Substrate's ambitions don't end with breaking ASML's lithography monopoly. Rather than supply the machines to chip manufacturers, known as foundries or fabs, the company says it will establish a network of its own fabs equipped with its lithography machines in time to begin producing chips at scale by 2028.
The company has hired more than 50 employees from IBM, TSMC, Google, Applied Materials and national laboratories .
Proud, who was born and raised in the U.K., was the first recipient of the Thiel Fellowship, awarded to aspiring entrepreneurs who choose to skip higher education and start a company. He renounced his British passport and became an American citizen in 2019, and became fixated on thwarting China's advancements in semiconductors.
Advanced fabs today start at $20 billion, and sometimes cost twice that. Proud said Substrate, by using its own, cheaper tools, will be able to build fabs for a price in the "single digit billions."
Proud said the company is making much of its tooling in-house and would be able to lower the cost of chip production by using less-expensive processes. Substrate's lithography process forgoes what's known as multi-patterning, or doing repeated exposures on a wafer to make ever-smaller features.
Industry experts say other companies have been unable to do away with multi-patterning in the quest to produce the most advanced chips. Substrate doesn't have upfront commitments for its chips, which would allow the company to fund development.
During the Biden administration, Proud met with the CHIPS Research and Development Office to discuss Substrate, said people familiar with the matter, but some officials thought his plan was too improbable to work.
Still, were Substrate to succeed, it would have precedent. Tesla and SpaceX are among the companies that have transformed their industries by solving engineering problems that were dismissed as too hard and consolidating control of the entire manufacturing process.
"We want to build," said Proud. "We want to increase the number of wafers dramatically. We think the demand will be there."
Write to Heather Somerville at heather.somerville@wsj.com
(END) Dow Jones Newswires
October 28, 2025 09:00 ET (13:00 GMT)
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