India’s semiconductor startups are attracting increasing investor interest, but many face a funding gap when they move from chip design to commercial production, limiting their ability to scale in a capital-intensive sector.
Indian semiconductor and physical-artificial-intelligence startups raised $523.3 million across 44 deals in 2025, compared with $114.4 million across 48 deals in 2024 The companies raised a further $193.3 million through 26 deals by August 10 this year
However, the rise in funding has not fully addressed the capital required for tape-outs, validation, production runs, customer qualification and market expansion. While early-stage investors are willing to back design teams and proof-of-concept products, the funding requirement rises sharply when startups seek to manufacture and sell chips at scale.
A startup seeking to compete meaningfully in the global semiconductor market may require $500 million to $750 million, according to an industry executive cited in the report. Such long-gestation and capital-heavy investments remain outside the risk appetite of many domestic venture-capital funds, which have traditionally favoured software and internet businesses with faster returns.
The challenge is particularly acute for fabless companies developing specialised chips for sectors such as electric vehicles, industrial automation, communications, internet of things and artificial intelligence. These companies do not need to build fabrication plants, but still require significant spending on electronic-design-automation tools, intellectual-property licensing, fabrication access, packaging, testing and certification.
Industry estimates suggest even a relatively simpler system-on-chip can require about $10 million for research and development and a further $10 million for sales and marketing.
Government programmes, including the Design Linked Incentive scheme, are intended to lower the risks of indigenous chip design. Yet reimbursement-based incentives can also stretch startups’ working capital because companies must first incur expenses before claiming support.
Separate industry data show Indian semiconductor startups have raised around $206 million across 51 funding rounds since 2022, with capital becoming more concentrated among ventures closer to commercialisation.
The funding bottleneck comes as India seeks to build a broader semiconductor ecosystem, spanning chip design, packaging, testing and fabrication. For startups, the next phase will depend not only on policy incentives but also on patient domestic capital, strategic corporate investors and access to global customers and manufacturing partners.
CT Bureau
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