What’s Keeping VCs From Backing India’s Homegrown Semiconductor Ambitions?

by · Inc42

SUMMARY

  • Despite major government incentives and project approvals under the India Semiconductor Mission, venture capital funding in semiconductor startups remains modest due to long execution timelines and the early stage of commercial activity
  • Semiconductor manufacturing is capital-heavy and better suited to large companies, while startups face a shortage of senior founding talent as experienced engineers prefer stable, high-paying roles at global chipmakers
  • Investor interest is growing in less capital-intensive areas like chip design and specialised semiconductors, with funding expected to pick up over the next few years as startups hit key milestones and the broader ecosystem matures
  • Added to Saved Stories in Login

On this day a decade ago, Prime Minister Narendra Modi launched the Startup India initiative to nurture innovation, promote entrepreneurship, and enable investment-driven growth in the country. The day, January 16, later came to be recognised as the National Startup Day. In 2026, we are marking the fifth National Startup Day, with a big focus on homegrown AI and semiconductors.

In the last 10 years, the country has grown to over 2 Lakh DPIIT-recognised startups. New sectors have risen to prominence, capital has cycled through multiple waves, and policy priorities have shifted. This shift is also evident in the growing focus on semiconductors, a sector that has long been considered challenging for India to develop.

However, in the four years since the launch of the India Semiconductor Mission (ISM) in 2021, the government has taken steps to advance India’s semiconductor ambitions through policy incentives and project approvals.

The government announced an INR 76,000 Cr incentive package, largely under the Production Linked Incentive (PLI) framework, of which nearly INR 65,000 Cr has already been committed.

The Centre also cleared four new semiconductor projects over the past year alone, involving investments of INR 4,584 Cr, underscoring its intent to anchor chip manufacturing and allied capabilities within India.

This policy push is beginning to find echoes in the startup ecosystem. Indian semiconductor startups note a gradual uptick in investor interest, particularly in chip design, testing, and specialised components.

In 2025, semiconductor startups raised roughly $50 Mn, according to Inc42’s annual funding report. In 2024, this amount was $28 Mn+ and a mere $5 Mn+ in 2023.

Yet, despite the growth, funding levels remain low when stacked against other segments. This raises the question: why has VC funding remained limited despite strong government backing and rising global demand for chips?

Policy Momentum Behind Semiconductors; Where’s The Capital

Industry stakeholders point to the time lag between policy announcements and their commercial execution. Much of India’s semiconductor framework is still in its early implementation phase, with approvals, land allocation, infrastructure build-out, and supply-chain alignment underway. By contrast, venture capital usually comes in after there are clear signs of progress — working products, early customers, or strong intellectual property.

“Policy has to translate into activity, and that activity has to mature before funding meaningfully scales,” a semiconductor startup founder said. As a result, most investments so far have been early stage, with relatively small cheque sizes, which shows that VCs are still taking up exploratory bets rather than conviction capital.

A second constraint is the way the semiconductor sector itself is structured.

RECOMMENDED FOR yOU