British AI chip startup Fractile has raised $720 million in its latest funding round, lifting the company's valuation to $7 billion, according to reporting by Reuters. A person involved in the deal told the news agency that the UK government also supported the transaction.

The raise positions Fractile, which is based in London and Bristol, among Britain's most valuable technology startups.

Thrive Capital, Founders Fund, Lightspeed and Redpoint led the funding round. Other investors included Google's investment arm CapitalG, BlackRock, DST Global, Elad Gil, Balderton and SV Angel.

Fractile also received investment from the UK government through its Sovereign AI fund and the British Business Bank, the government-owned development bank, giving the government a stake in the company.

What Fractile builds

Fractile makes chips designed to help AI models answer questions and complete tasks after training — a phase of AI computing known as inference, which takes place every time someone interacts with an AI system, whether a chatbot or another AI-powered service. The company claims its chips can make AI run faster generally while using less energy and costing less, according to Reuters.

Running AI models is expensive because every request consumes computing power. Even the smallest savings can make a meaningful difference when millions of people rely on these systems.

Nvidia and a handful of large Asian chipmakers supply most of the chips used for AI. Fractile hopes to compete with these companies, and the size of its funding round signals that investors are willing to back other chip companies. How the startup converts that backing into chips that win adoption against such established suppliers is likely to be a key question in the period ahead.

UK government furthers AI investments

The UK wants to become a world leader in AI and to use the technology to grow its economy. Britain is already well known for its research and chip design. By investing in companies like Fractile, the government hopes to create more jobs and keep more of the money generated by AI in the country.

AI Minister Kanishka Narayan said the funding forms part of the effort toward those objectives. Narayan said Britain has long produced some of the world's best scientific ideas, but much of the technology, business and wealth that comes from them has ended up in other countries. He added that the government was determined to change that, Reuters reported.

Britain is home to Arm, which designs chips used in billions of devices worldwide and licenses its designs to manufacturers rather than producing the silicon itself. However, the country has few chip factories, which is one reason the government wants to invest more in British chip companies.