India’s semiconductor bet: government to become a startup shareholder

Semiconductor startups in India are about to get a very different kind of investor: the government itself. The Union cabinet has approved Semicon 2.0, a scheme worth Rs 1,27,500 crore that moves away from one-time grants and toward milestone-linked funding paired with direct equity investment, alongside venture capital firms.

India Semiconductor Mission (ISM) chief executive Amitesh Kumar Sinha told TOI that the redesigned framework responds to a funding gap that became obvious under the earlier Design Linked Incentive (DLI) scheme. Several startups under DLI managed to build working chip designs and proof-of-concepts, but many could not raise the hundreds of crores needed to get those designs qualified, commercialised and deployed at scale.

“Semiconductor startups need patient capital. Unlike software companies, they require substantial investments before they can bring products to market,” Sinha said, describing the gap between a promising prototype and a market-ready chip as the point where most startups struggled.

Under the new structure, companies will first receive seed capital and then move into significantly larger funding rounds as they hit predefined technical and commercial milestones, with an internal committee currently finalising the programme’s exact contours.

Sinha was clear that the government does not intend to behave like a controlling investor. The Centre will generally cap its equity stake below 50%, skip board representation, and stay out of day-to-day management so founders keep operational control. As a company matures, its founders will have the option to buy back the government’s stake, and the company remains free to raise fresh capital or pursue acquisitions on its own.

“We will exit at the prevailing valuation, recover our investment and reinvest that capital into the next generation of semiconductor startups,” Sinha said, framing the model as a recycling fund rather than a permanent government stake. “Govt is not here to make money. Our objective is to support startups and build the ecosystem.”

India is not alone in testing this approach. Governments elsewhere are increasingly swapping pure grants for equity-based support in strategically important tech sectors — the US, for instance, saw the Trump administration convert part of Intel’s CHIPS Act grants into a passive 9.9% equity stake, while leaving Intel’s management fully in control of the company.

[Wikimedia Commons/by Kevin CW Lu]