Govt to Match VC Funding for Chip Startups Under ₹1.27 Lakh Crore Semicon 2.0

The Centre will take equity stakes in semiconductor startups under the newly approved Semicon 2.0 programme, marking a shift in India’s chip strategy from providing incentives alone to directly co-investing in promising ventures. However, the government will exit its investments as companies mature, allowing founders to retain long-term control.

The ₹1.27 lakh crore Semicon 2.0 programme introduces equity funding as a key mechanism to help semiconductor startups raise capital across different growth stages. Speaking at a media roundtable on July 16, India Semiconductor Mission (ISM) CEO Amitesh Kumar Sinha said the government would co-invest alongside venture capital firms rather than function as a controlling shareholder.

Under the proposed model, the Centre will match private investments from seed funding through subsequent funding rounds on the same commercial terms as venture capital investors. The government will contribute up to half of the capital raised from the market while taking an equivalent equity stake.

Sinha clarified that the government does not intend to play an active role in managing these companies. Instead of seeking board seats or operational control, the Centre will remain a financial investor, with founders continuing to hold controlling stakes. The government’s shareholding is also expected to remain below 50%.

The exit mechanism has been designed to allow startups to repurchase the government’s stake once they generate sufficient revenues. If a startup is acquired instead, the government will monetise its equity at the prevailing valuation without imposing restrictions on the transaction.

According to Sinha, the broader objective is to recycle public capital into the ecosystem by reinvesting proceeds from successful exits into future semiconductor startups, thereby creating a self-sustaining funding cycle.

The equity funding mechanism is one of the biggest additions under Semicon 2.0, which broadens India’s semiconductor roadmap beyond fabrication and assembly. The second phase places greater emphasis on chip design, advanced packaging, semiconductor materials, chemicals, manufacturing equipment, research and talent development, while continuing support for fabrication facilities through pari-passu incentives.

For larger and more established semiconductor companies, the government will adopt a different funding approach. Instead of taking equity, it will provide support through a royalty-based model under which companies will repay 1.5 times the government assistance once their projects begin generating revenue.

The Centre expects Semicon 2.0 to attract around ₹4 lakh crore in investments and strengthen India’s domestic semiconductor ecosystem across design, manufacturing, materials, equipment and research over the coming years.