Indian Semiconductor Startups Pick-up the Pace

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Recently, the India Electronics and Semiconductor Association (IESA) has constituted up an accelerator for encouraging the constitution of semiconductor startups in the country. The association is looking towards designing chips for various products like Smartcards, Energy meters, LED lighting, rural broadband, IoT incorporation in the multiple industries, all within the country. This accelerator would take into consideration of promoting 20 startups in the next couple of years raising the count of semiconductor startups to 50 in the next five years. The Karnataka government alone has invested Rs 21.5 crore in the accelerator which would in due course raise to Rs 56 crores in five years. The Semiconductor Fabless Accelerator Lab will require an infrastructure to build intellectual property in the area of semiconductors.

One can say that while India is still lagging when compared to the semiconductor manufacturing companies globally, the country has the potential of building an ecosystem of semiconductor design firms, owing to the global conglomerates like Intel, Cadence and Texas Instruments who have set up their software development base here. The accelerator is also on the look-out to tap into this ecosystem to construct a local station of semiconductor startups who can devise chips for India-specific necessities. They aim to incubate 3-4 startups in the new facility by March 2019 and SFAL is filling a vital gap in the ESDM ecosystem that will prepare the country to capitalize on the megatrends unleashed by intelligent electronics. It is pertinent to mention that according to the IESA report at Vision Summit 2018 it has been established that the Indian semiconductor component market is forecasted to see a significant market increase of USD 32.35 Bn by 2025.

The Struggle is on

On the flipside numerous startups are still struggling to establish themselves in the semiconductor domain, owing to funds. It is important to note that to set up a semiconductor startup a tremendous amount of investment is required. But, one has to keep in mind that payback gets longer, and setting up the startup will require considerable knowledge of the domain alongside favorable government policies. But, if one needs to check the facts firmly, then domain knowledge and the Make in India initiative started by the Indian government is assisting the semiconductor sector greatly. But, lack of funds has culminated into one of the biggest roadblocks along with better client connections and market access. These factors need to be addressed for the semiconductor sector to gain momentum.

Semiconductor-related manufacturing has been the political viewpoint of both the UPA and NDA governments, who from time to time have made numerous promises to set up semiconductor fabrication plans, which manufacture integrated circuits. But until knowing the progression is very limited, and only two fabrication plans have been constituted—one in Chandigarh by ISRO and second in Gujarat.

The situation presents itself to irony, taking into consideration the fact that the Indian market for semiconductor components is forecasted to touch USD 32.35 Bn by 2025, according to IESA. Hence, to tap into this prospect, numerous start-ups have tried their luck in the semiconductor domain even though they know their competitors are multinationals organizations.

Interestingly, India imports about 90 percent of its electronics components necessary, and while the government has expressed its concern about diminishing it, not much has transpired.

It is here that organizations like IESA need to bring up the case for start-ups. IESA comptrollers announced that a contingent of 12 senior industry managers is together working towards delivering on-ground activation for enabling innovation and investment.

Funds & Market Access: The Big Issues

The scales seem to be heavily weighing against start-ups, and it is here that funds and market access have culminated into a big issue. Startups are shelling out approximately around USD 20,000 for hardware and software, alongside paying salaries to a dozen people who are associated and spend at least for six years in designing, building and marketing a prototype. At the end of the process, a product may need alteration and, many a time the market access itself takes a substantial amount of time. Many in the semiconductor domain are upset over VCs, which they feel are nowhere aligned with the vision of the government’s manufacturing goal.

Startups in the semiconductor domain are raising questions like when VC can invest USD 10-15 Mn in e-commerce or food-tech ventures, where numerous fail then why can the VC and angel investors invest the same amount in the semiconductor domain which is bound to go leaps & bounds owing to the requirement of the same in the market. Off late, China has been accounted for 44 percent of the global semiconductor industry’s total revenue of USD 339 Bn, according to the Semiconductor Industry Association.

Funding is significant for the sector as industry watchers think that as connected devices become mainstream, the government faces an increased security risk. And although the same issue has been posted to the government, it has fallen on a deaf ear, and there have been no actions with regards to the same. However, with Karnataka government investing in and starting their accelerator facility has been sanctioned for 200 start-ups, and the government will offer extensive hand-holding in domains such as funding and access to government projects.

2018 Funding Trend: In a nutshell

Indian startups raised USD 12.68 Bn in equity funding, plus USD 1.14 Bn in debt funding in 2018, across a total of 864 deals, surpassing 2017. Late-stage startups with a proven track record have taken the maximum share of funding raised. Fintech/financial services were the star-performer as e-commerce bid goodbye to Flipkart from the funding stakes following its acquisition by Walmart

Chinese investors began investing in earnest, putting money into 21 startups as compared to just 12 in 2017. Investors from Japan (and not only SoftBank), as well as other countries, also upped their funding in Indian startups.