The government will release a set of white-listed venture capital (VC) firms to serve as its benchmark for investing in semiconductor design startups under the India Semiconductor Mission (ISM) 2.0, said S Krishnan, secretary of the Ministry of Electronics and Information Technology (Meity). The idea of only these VC firms investing in the startups is to ensure that the government's risk capital goes to firms that are selected by experts and meet market norms, Krishnan said in an interview with Aashish Aryan. Edited excerpts:
VC firms assume a lot of risk when they invest in startups. The risk is manifold when it comes to deep-tech startups. Can the government stomach such risk? Yes. That is a risk, but one has to take a risk somewhere if an ecosystem is to be grown manifold. If we invest in 10 startups and, let’s say, a couple fails, the remaining eight will generate enough revenue for the government to cover its bet.
In the first phase of the ISM, there was a one-time grant of ₹50 crore; thereafter, incentives and funding were linked to the actual volumes the startup produced. But a grant of ₹50 crore does not get you very far, as the chips you can make with that funding are very low-end.
How will the white-listing of VC firms work and what criteria will be followed? VC funds that have an established track record of investing in recognised deep-tech startups, especially in the semiconductor space, will naturally be given preference.
We will also look at the VC funds selected by the government under the Research, Development and Innovation (RDI) fund, the daughter fund of these VC funds, and their investment track record.
Based on that, the government will decide if a startup is eligible to receive equity-based funding under the ISM. A startup has to convince a white-listed fund to give it money, and we will invest on a parity basis.
Will the government limit itself to pre-seed funding, seed funding, a series A or B round? Or, will it continue investing with the VC fund/funds and match the investment on a like-to-like basis? It depends on how far the VC funds are willing to invest and how much revenue momentum the company can generate. If the private sector can generate its own funding momentum, we will step back.
At a grant of just ₹50 crore, we are too small. We get the company to a particular size, and they can go on while we step back or liquidate our stake. The idea is to crowd the space with enough VC funds by showing them that the government is also willing to take the same risk that they are.
Once they are confident in the ecosystem, most such issues will be taken care of.
 "Risks a must for growth of semicon design: Meity Secretary S Krishnan")
