Investment is led by SoftBank Vision Fund’s former leader, who is placing bets across magnet-supply chain

By Heather Somerville

Texas rare-earth magnet maker Noveon Magnetics has raised $215 million from investors as the U.S. pushes to develop domestic sources of a vital electronics component that China, the world’s largest supplier, has under a chokehold.

One of the few U.S. rare-earth magnet makers, Noveon is riding a wave of urgency stemming from a U.S. trade war with China that has put once-obscure critical minerals into sharp focus. The San Marcos, Texas-based company, started in 2014, began delivering magnets only in the past two years and is now vying to supply the array of American industries that need magnets.

The raise—which is roughly double all of Noveon’s prior venture-capital funding—comes mostly from One Investment Management, the investment firm of Rajeev Misra, the former long-running leader of SoftBank Group’s mammoth Vision Fund. The firm put in $200 million, and the remaining $15 million comes from existing investors, said Noveon Chief Executive Scott Dunn, who declined to provide the company’s valuation. With the investment, One Investment Management becomes the largest shareholder and gets two board seats.

Last year, venture capitalists invested $630 million in U.S. critical-mineral startups, the highest level recorded, according to data provider PitchBook.

Beijing in April countered Washington’s tariffs with export controls on rare earths, including those used to make the magnets required for missile defense systems, submarines, data centers, jet fighters, drones and electric vehicles. The new measures required Chinese exporters of certain crucial rare earths to first apply for permission, giving Beijing the ability to hold up or block sales.

The restrictions fell like a hammer on U.S. industries: Exports plunged, and companies were forced to pause production, delay sales and scramble for alternative sources, The Wall Street Journal has reported.

It was a manufactured crisis that Dunn had predicted over a decade ago while working inside China’s magnet-making businesses. He and his co-founder spent a few years in factories across China—which supplies 92% of the world’s rare-earth magnets—to learn the trade and study the supply chain.

“You just have to go where something is if you really want to be serious about it,” Dunn said. “This industry really is a case of all roads lead to China.” 

Noveon became the first company to reshore full-scale magnet-making in the U.S. It spent several more years building a factory, hiring and training a workforce, and trying to convince customers to buy Noveon’s magnets, not China’s. It gets rare earths from Australia, partners with a refiner in Europe and has developed a process for sintering, molding and finishing the magnets.

“It is really complicated, it is really capital intensive, it is not easy to course-correct,” Dunn said. Sourcing all of his materials from outside China meant paying a premium. “You have to wonder if the thing you are doing makes sense,” he said. Noveon has received almost $40 million in federal grants from prior administrations, including pandemic-era funding.

The current Trump administration has underscored the importance of American-made magnets with $670 million in loans and equity investment to North Carolina-based rare-earths magnet startup Vulcan Elements and another $80 million for Indiana-based ReElement Technologies, which recycles rare-earth elements. The Pentagon took a 15% stake in rare-earths mining company MP Materials, which is building a new magnet factory in Texas.

A group of lawmakers last week proposed a $2.5 billion reserve to stockpile supplies of critical minerals, including rare earths such as those used in magnets.

“It is like ‘operation landing on the moon’ in the Kennedy days,” said Misra. “It has that sense of urgency in Washington.”

His firm also backed Vulcan Elements, believing “the U.S. needs three or four magnet makers,” Misra said. “The U.S. is doing a catch-up here.” He said his firm has made several other investments in the magnet supply chain that it will announce over the next four months.

The Vision Fund, under Misra’s leadership, often invested heavily in direct competitors in the same sector, the Journal has reported.

Dunn said Noveon is on track to produce more than 2,000 tons of magnets a year, about 5% of the current U.S. demand. China can produce about 400,000 tons a year, at least 40% more than total global demand.

Noveon’s customers include General Motors. It recently announced a deal to build a factory in South Korea and partner with LG Electronics on recycling end-of-life electronic materials and creating new magnets from them.

Write to Heather Somerville at heather.somerville@wsj.com