Etched reaches $5 billion valuation as it eyes Arizona manufacturing

Etched, a four-year-old artificial-intelligence chip startup valued at $5 billion, announced that TSMC manufactured its first chip earlier this year. The startup is currently preparing to ship systems powered by its chip to customers later this summer. However, scaling production may prove challenging for Etched due to limited capacity at TSMC, where the company must compete with other chip designers.

To navigate these constraints, Etched is leveraging its relationship with early investor Copper Sky Capital. The venture capital firm invested in Etched’s $120 million Series A—an early-stage venture capital funding round—two years ago. Jack Selby, the founder of Copper Sky Capital and a board member of the Arizona Commerce Authority, secured an allocation in the round by promising to help the startup eventually reshore its chip fabrication to Arizona. Selby, who also serves as a managing director at the family office Thiel Capital, founded Copper Sky Capital in 2021 with a first fund of $115 million. Selby’s role on the board of the Arizona Commerce Authority deeply involves him in recruiting out-of-state businesses to set up manufacturing operations in the region.

The firm’s initial investment thesis focused on startups based in Arizona and the Southwest. Selby sought to bridge the gap for hardware startups based in coastal hubs like California, Massachusetts, and New York by helping them move their production operations to Arizona. Selby credits Copper Sky Capital’s investment in Etched—an otherwise hard-to-access startup—to his influential role in Arizona’s economy and his connections to the local semiconductor industry.

“When Copper Sky invested with Etched, the company clearly understood our connectivity to the Arizona semiconductor industry, and in particular the local TSMC GIGAFAB,” Selby said. The GIGAFAB is TSMC’s large-scale semiconductor fabrication facility located in the region.

To expand this strategy, Copper Sky Capital is currently raising a $300 million second fund, according to a regulatory filing. The firm plans to use the new capital to back hardware companies throughout the United States that can utilize Arizona’s manufacturing infrastructure, expanding its investment focus beyond the Southwest to include nontraditional venture hubs nationwide.

Why it matters

Etched is attempting to scale production of its chips by leveraging manufacturing capacity in Arizona, a move supported by investor Jack Selby’s connections to the local semiconductor industry. If successful, this strategy could establish a blueprint for other hardware startups looking to reshore production to the United States.