Semiconductor Startups Raise Over $28 Mn In 2024; Will This Year Be Any Better?

The year 2024 was upbeat on the funding front for the Indian semiconductor space. What pushed the envelope last year was robust government support for the sector and a strengthened policy framework.

According to the data compiled by Inc42, at least seven semiconductor startups raised funding worth more than $28 Mn last year, compared to a little over $5 Mn raised by two startups the year before.

Given that India already has top design engineers and a large number of startups in the chip design space, most VC investments flowed into this category last year. Some ventures that kept investors engaged during the year were Mindgrove Technologies, FermionIC, and BigEndian Semiconductors. 

While Mindgrove Technologies topped the funding charts, bagging $8 Mn, FermionIC took the second spot and raised $6 Mn during the year. Further, C2i Semiconductors, AGNIT Semiconductors and BigEndian raised $4 Mn, $3.5 Mn and $3 Mn, respectively, during the year.

Notably, funding raised by gallium nitride (GaN) wafer developer AGNIT Semiconductors and many-core processor developer Morphing Machines ($2.76 Mn) is emblematic of the fact that the Indian semiconductor space is maturing.   

What’s also worth mentioning is that while semiconductor design startups in India have existed for decades, most of them relied on government support or limited private market investment until a few years ago. 

However, this trend is now changing with India becoming a crucible for an increasing number of tech-capable ventures. Not to mention, many fabless semiconductor companies, such as Sankalp Semiconductor, Beceem Communications, and Cosmic Circuits have also been acquired by larger international players over the years.

Apart from the Indian semiconductor industry moving closer to maturity in 2024, several factors boosted venture capital (VC) activity in the sector. Some of these are the establishment of fabrication plants, government initiatives like design or production-linked incentives, and the advantages gained from the China+1 strategy.

Decoding The Funding Equation

Now, before diving into decoding the funding paradigm in the space, it is crucial to understand that semiconductor is a sunrise sector, therefore the amount of funding in the space is currently on a steady pace. 

Other factors that often have a direct bearing on the funding quantum include capex-heavy business models and the development of technologies that have too long gestation time.      

Not to mention, private funds, particularly venture capital, are more interested in fabless semiconductor companies that are into designing chips or creating IPs. This is because such ventures do not need much capital and have a shorter gestation period compared to manufacturing versus corporations engaged in manufacturing. 

Despite this, the fund allocation in terms of ticket size is still far away from being on par with the amount of capital that is required to back chip manufacturers.  

However, the year 2024 paved the way for more hope. Several glimmers of hope emerged with the launch of new funds aimed at serving the sector.

A key example is Yali Capital, an INR 810 Cr fund launched by Ganapathy Subramaniam and Mathew Cyriac. Floated in July last year, the fund invests across deeptech sector and in segments such as chip design, robotics, aerospace and defence, genomics, space, manufacturing, and the wide world of AI.   

Besides, existing deeptech-focussed VCs and other sector-agnostic ones have increased their focus on semiconductors. For instance, growX Ventures floated its second fund with a target corpus of INR 400 Cr with semiconductor startups being a key focus. Similarly, 3one4 Capital made its first semiconductor investment in AGNIT last year.

Interestingly, 20-year-old Morphing Machines raised INR 23 Cr in seed funding last year from deeptech VC firm Speciale Invest, IvyCap Ventures, and others. 

This 2005-founded company received VC attention in recent times its processor, REDEFINE, which is being touted as one of the few many-core processors in the world that integrates various domain-specific architectures (DSAs) on a single chip.

“Over the last many decades in the semiconductor industry, the problem of building multicore, multi-application, reconfigurable compute chips has not been fully solved. This is a massive problem that Morphing Machines has been trying to solve through years of research, and over the last two or three years this research has culminated to being very close to a product in reality,” said Speciale Invest’s Partner Arjun Rao, speaking on the rationale behind investing in the company.

Meanwhile, investors have started showing a lot of interest in startups that are into chip designing, particularly the ones building for artificial intelligence (AI) applications.

According to Rao, activity in specialised chip designing for niche applications with AI is increasing. The ones making for automotive, household devices, and manufacturing will emerge as the winners. Rao added that with AI adoption rising, the demand for AI-enabled data centres will explode. 

“The semiconductor technology for the data centre ecosystem is set to undergo significant innovation. Speciale is particularly excited about advancements in areas such as silicon photonics, optical interconnects, in-memory and flexible compute architecture, analogue AI compute, and more,” Rao said.

The Centre’s Shot In The Arm For Semiconductor Startups

It is to be noted that the Indian government has significantly increased land allocation and funding to Indian and international semiconductor players to set up their fabrication plants. 

At the beginning of 2024, Prime Minister Narendra Modi inaugurated three semiconductor plants worth over INR 1.25 Lakh Cr. 

These factories included CG Power and Renesas Electronics’ INR 7,600 Cr chip project facility, Tata and Powerchip Semiconductor Manufacturing Corp’s (PSMC) chip foundry worth INR 91,000 Cr, and the Tata OSAT facility worth INR 27,000 Cr.

Last year, the Centre initiated the disbursement process for US-based chipmaking giant Micron under its $10 Bn PLI scheme to support the establishment of the company’s assembly, testing, monitoring, and packaging (ATMP) plant in Gujarat.

Besides, in the second half of the year, the union cabinet approved Kaynes Semicon’s proposal to set up its outsourced semiconductor assembly and testing (OSAT) facility in Gujarat with an investment of INR 3,300 Cr. 

Last month, the Karnataka government approved Zoho-backed Silectric’s proposal to set up a semiconductor INR 3,425.6 Cr manufacturing unit in the state.

“The huge local market opportunity, intense push by the government, and availability of government incentives such as DLI and PLI are all contributing to the VC interest in semiconductor,” Subramaniam said.  

Investors also believe that the funding landscape will only improve as the sector matures, with more entrepreneurs rising and ventures making more innovative products.

However, there is a twist in the Indian semiconductors tale. In December last year, the Ministry of Electronics and IT (MeitY) was questioned by a parliamentary panel for surrendering 55% of the funds allocated for semiconductor and display manufacturing projects in 2023-24. Arguably, MeitY spent only INR 681.11 Cr out of the total allocation of INR 1,503.36 Cr as of March 31, 2024.

What’s Ahead For Indian Semiconductor Space 

As per Inc42’s Indian Tech Startup Funding Report, 2024, deeptech investments is a top priority among VCs currently. 

Even as the startup ecosystem battled with funding winter, more than $460 Mn was raised by over 73 deeptech startups in 2024 as against $496 Mn raised by 61 startups a year before. 

Investor interest in deeptech is projected to remain strong in 2025, driven by the GenAI boom. According to the report, early-stage investments are expected to focus on emerging sectors like vertical AI, AI infrastructure, and semiconductors. Notably, a survey conducted by Inc42 revealed that 22% of VCs identified semiconductors as their top investment priority for 2025.

“We think there will be more quality founders who will be starting companies in this sector, building for Indian and global markets from India. Therefore, the capital providers will have more opportunities to invest in,” Speciale’s Rao said.

Echoing a similar sentiment, Yali Capital’s Subramaniam said, “In the next 5-10 years, we should see improved growth. The success of the first few companies will further decide the rate of growth in funding.”

Meanwhile, AI chips and edge AI chips are key areas that are getting stronger and attracting investors globally. In a recent development, Apple is working with Broadcom to develop its first server chip designed for AI processing. However, India might not catch up to this fever soon.

Subramaniam said, “Some of the AI Chips in the latest technology nodes will need between $500 Mn to $1 Bn in funding. India, in my opinion, will start with analogue semiconductors like power controllers, motor drivers, audio chips, and maybe Edge AI and surveillance ICs in digital semiconductors before venturing to other areas.”

Overall, more funding is expected in the sector as India prepares to start the production of chips to cater to the growing demand for various consumer electronics devices in the country and globally. 

Moving on, India may see a spurt on the mergers and acquisitions (M&As) front as large global firms will try to enter the space and smaller semiconductor players with strong technology capabilities will increase in number.

This has started to happen already. Last year, construction giant L&T’s semiconductor arm, L&T Semiconductor Technologies, acquired Indian semiconductor design startup SiliConch Systems for INR 183 Cr.  

IT services major Accenture also acquired India- and US-based Cientra, a silicon design and engineering services company, last year. Infosys, too, completed the acquisition of semiconductor design and embedded services provider InSemi for INR 280 Cr last year.

In the coming days, consolidations are expected to increase in the country not only in the semiconductor space but also in the broader technology ecosystem. It is pertinent to note that more global players are getting active in the country in chip design and manufacturing space on the back of the Centre’s ‘Make in India’ initiative. 

Dutch semiconductor design player NXP plans to invest over $1 Bn in the country in the next few years to focus more on R&D. Apple is also increasing its manufacturing capabilities in the country.

[Edited By Shishir Parasher]

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