As US aids semiconductor industry, billionaire-backed tech fund enters spotlight
- America’s Frontier Fund, supported by a former Google CEO, raises watchdogs’ concerns over how government investment will be steered to private companies
- The Chips Act, meant to spur the US semiconductor industry, could end up handing ‘a lot of political power’ to a small number of billionaires, they warn
While not specifically billed as an alliance against China, “the Quad” is widely understood to be motivated by Beijing’s growing influence in the region on many fronts, including technological competitiveness.
But now AFF, ideally placed to help determine government priorities under the Chips and Science Act, is piquing the interest of some tech industry watchdogs. They fear an excessive amount of private influence within the government creating a “clear conflict of interest”.
The fund now wants to focus on the Chips Act. “We want to help give granular insight into where we think the biggest opportunities are for disruptive US semiconductor leadership,” Jordan Blashek, president and co-founder of AFF, said in an interview on July 26.
According to AFF, it is not currently involved in government funding or spending, and it plans to raise its own investment capital from private markets. As a non-profit, the fund is not required to disclose its donors.
To Xiaobo Lu, a political economist and professor at Columbia University’s Barnard College, it appears that the US is trying to “take a small, but important, page out of China’s playbook” on public-private partnership, a strategy where “industrial policy is not regarded as a negative word”.
Created in 2018, the NSCAI was an independent commission charged with making recommendations to the president and Congress to “advance the development of artificial intelligence, machine learning and associated technologies”.
The commission was led by Schmidt and submitted its final report in March 2021, when it warned that “America’s tech predominance is under threat” from China.
Schmidt is one of AFF’s donors, along with venture capitalist and PayPal co-founder Peter Thiel, Blashek said. Schmidt does not sit on AFF’s board of directors, and his name does not appear among its leadership.
But AFF boasts a line-up of defence insiders and Schmidt’s close connections hailing from Washington and Silicon Valley.
AFF co-founder Gilman Louie, for instance, was the first CEO of In-Q-Tel, an independent non-profit venture capital firm backed by the CIA.
Louie also served as one of 15 commissioners at the NSCAI under Schmidt’s leadership. Several recommendations made by the commission were adopted by the Department of Defence in 2021.
Schmidt’s work with the Pentagon precedes his leadership of the NSCAI. He chaired the Defence Innovation Board, an independent body advising the Defence Department on tech innovation, from August 2016 to September 2020.
“Coming out of the AI commission, several people got together and brainstormed how we could use existing strengths the US has with new capabilities in order to bridge the gap in the innovation base,” Blashek said.
To this end, AFF now hopes to advise the US government on where to invest in chip technology. The Commerce Department and its secretary, Gina Raimondo, will be responsible for determining which companies qualify for subsidies.
“This is not a blank cheque to these companies,” Raimondo was quoted as saying. “There are a lot of strings attached and a lot of taxpayer protections.”
Semiconductors are a key component of daily electronics, medical equipment and military hardware, and Blashek sees AFF as connecting private sector innovation to government priorities.
On May 25, a day after the White House announced the Quad Investors Network, the Tech Transparency Project (TTP) of the non-partisan, non-profit watchdog Campaign for Accountability, issued a report describing AFF as an investment vehicle “quietly” built by Schmidt to “blend” public and private funds.
Katie Paul, the TPP’s director, said it was unclear if any safeguards were in place to prevent a conflict of interest and excessive private influence within the government enriching the fund’s founders “rather than those best suited to enhance the security of the American people”.
“Eric Schmidt is an unelected private citizen, and yet, through AFF, he has the potential to wield a tremendous amount of influence over the allocation of taxpayer dollars,” Paul said. “Schmidt’s investment portfolio overlaps significantly with AFF’s announced focus areas, increasing the likelihood that he will profit from the group’s work.”
Among the start-ups the TTP report named as potentially bringing Schmidt monetary gain were AI-focused Steel Perlot, Zetta Venture Partners and Abacus.ai, as well as Rebellion Defense, creator of cutting-edge software for the defence industry.
Schmidt is also chairman of the board of directors at Sandbox AQ, an AI software development firm. In-Q-Tel, the CIA-backed investment firm, recently announced it was investing in Sandbox AQ to build software for US intelligence agencies.
Jack Poulson, a former Google research scientist who is now executive director at Tech Inquiry, an accountability non-profit that tracks ties between Silicon Valley and the US government’s military and intelligence sectors, echoed Paul’s apprehensions.
“I think the willingness of the US national security community to work underneath Eric Schmidt is sabotaging our antitrust efforts in service of their own careers,” said Poulson. “When you disadvantage the smaller players, then I think it would be fair to say you’re hurting innovation.”
In response, a spokesperson for Schmidt said private philanthropy regularly stepped in to fill “major gaps” caused by “budget constraints and lack of technical talent and expertise”.
“Schmidt has worked across several administrations and presidents, and the work has remained bipartisan and focused on supporting the country,” the spokesperson said.
“Regardless of how much positive work is getting done, unfortunately, there are always going to be naysayers.”
Blashek also denied any conflicts of interest and said AFF sought to help smaller companies that would otherwise lack capital to compete with the likes of Google.
“We are trying to unlock the market for start-ups,” he said, noting AFF had “yet to begin fundraising”. Blashek believed more Eric Schmidts were needed, not fewer.
In keeping with the Commerce Department’s encouragement of the private sector to co-invest alongside the government, AFF was concentrating on raising capital over time and not necessarily from the government, Blashek added.
“I think we need the best investors. We need the best technology executives to get involved in this,” he said. “This is a whole-of-nation challenge to revitalise the American innovation base. And if our best investors are kept on the sidelines … then the US is actually at a disadvantage.”
“Governments all over the world are always hoping to engage the private sector enterprises and philanthropies to push forward their agenda,” Chander said, adding that it was “easy” to discern if those investments were unduly aligned with private interests given the “extensive” rules in place for how governments invest in the private sector.
As political economist Lu sees it, the quest for self-reliance through private-public partnership marks a new direction in a post-globalised world. “I think this will have a great impact on the future of globalisation, free trade and the role of government in the economy and the marketplace.”