India's semiconductor startups have cleared the design stage with government support and seed funding, but few are securing the much larger investments needed to move from initial chip production to commercial-scale manufacturing.
Indian semiconductor and physical-AI companies, which develop AI-powered machines and robots, raised $523.3 million across 44 deals in 2025, up from $114.4 million across 48 deals in 2024, according to Tracxn data reviewed by Mint. They raised another $193.3 million across 26 deals through 10 August this year.
The Tracxn data shows that the funding funnel narrows after seed. From 2023 through 2026 so far, the sector recorded 94 seed and angel deals against just 20 Series A deals. Seed and angel funding stood at $44.1 million across 32 deals in 2024, $33.4 million across 28 deals in 2025 and $19.2 million across 15 deals this year.
Series A activity has been thinner, though improving, with four deals worth $25 million in 2024, six worth $53.6 million in 2025 and eight worth $72.9 million this year.
Growth-stage funding reached $423.1 million in 2025, with ILJIN Electronics and Tessolve Semiconductor accounting for $348.4 million of the total. ILJIN is an electronics manufacturing services company, while Tessolve provides semiconductor engineering, testing and validation services. Neither is a young fabless startup that designs and sells its own chips.
State support has been strongest at the design stage. At least 24 projects are being supported under the Design Linked Incentive scheme, while 105 companies have received access to advanced chip-design tools, the government said in June. It said 23 chip designs had completed tape-out – stage at which a finished design is sent to a foundry for manufacturing.
Tape-out is a critical milestone because it determines whether years of engineering work can be turned into physical silicon. But reaching this stage does not mean a startup has a product ready for commercial sale. The chip must still return from the foundry, undergo packaging and testing, work reliably with software and hardware, and be qualified by customers.
A Bengaluru-based founder of an AI processor startup, speaking on condition of anonymity, said the money often runs out before the first silicon is produced. The startup has completed its design and tested it in simulations and on a programmable prototype, but needs capital to turn that into a physical chip.
The founder said an initial batch of about 100 chips would cost roughly $6.3 million. That would only establish whether the design works after manufacturing, how many chips are usable, and whether packaging and software hold up. Unable to raise the full amount, the company has broken the requirement into stages.
“We initially sought $40-50 million to take the product through tape-out, early production and its next version, but now we have split that requirement into smaller rounds, starting with $15 million. That should fund tape-out and an initial run of about 1,000 chips,” the founder said.
Investors are often reluctant to commit large sums before a chip has been taped out.
An investment banker who advises deep-tech companies said that investors assess whether a pre-tape-out design can be manufactured reliably and whether it has a market. The larger the cheque, the more founders must demonstrate a credible development plan, potential customers and a route to market.
“Founders may need to raise smaller initial rounds, meet milestones and return for more capital in a staggered manner,” the banker said.
A senior partner at an early-stage venture capital firm said the arithmetic of a frontier chip company is difficult for a conventional venture fund to approve because the capital requirement arrives long before evidence of commercial success.
Companies attempting to compete at scale with global chipmakers may need $500-750 million, this person said, adding that such patient capital sits outside the current Indian venture model.