Key Takeaways
- • India's Ministry of Electronics and Information Technology notified Semicon 2.0 on August 31, 2026, establishing a structured funding pathway for domestic semiconductor design startups and MSMEs through grants and equity co-investment mechanisms.
- • Eligible startups and MSMEs can access milestone-linked seed funding of up to Rs 15 crore (or 50% of project cost, whichever is lower) with equity co-investment available for companies that have already secured venture capital or private equity backing.
- • Larger eligible companies gain access to royalty financing structures requiring 5% of net revenue repayment until 1.5 times the government support is recovered, or alternatively equity co-investment on terms matching private investor agreements.
- • Beneficiaries must be incorporated and headquartered in India with significant operational and manpower presence, owned and controlled by Indian citizens or Overseas Citizens of India (OCIs), establishing clear domestic control requirements.
- • Exit mechanisms vary by funding type: seed/equity recipients must repay 1.5x total support (or market value of equity holdings), while royalty-financed companies repay 1.5x support if exiting within four years or 2x support after four years.
Summary
India's Ministry of Electronics and Information Technology formally notified Semicon 2.0 on August 31, 2026, introducing a comprehensive funding framework designed to accelerate domestic semiconductor design capability. The scheme establishes tiered support mechanisms tailored to company maturity levels, directly addressing capital constraints that have historically limited India's chip design sector development.
Startups and MSMEs constitute the primary beneficiary category, eligible for milestone-linked seed funding capped at Rs 15 crore or 50% of project costs, whichever is lower. This grant structure is paired with equity co-investment options for companies that have already demonstrated market traction by securing venture capital or private equity commitments. The co-investment terms mirror those negotiated with private investors, creating alignment between government and commercial capital sources and reducing the effective dilution faced by founding shareholders.
Larger eligible companies access complementary funding channels, including royalty financing arrangements where government support is recovered through 5% of net product or technology revenue until repayment reaches 1.5 times the initial government contribution. This structure enables capital-intensive semiconductor development without immediate equity dilution, addressing a critical financing gap for companies scaling production-ready technologies. Companies may alternatively opt for equity co-investment on equivalent terms to those available for smaller entities.
The scheme imposes strict eligibility criteria centered on domestic incorporation and control. Participating companies must be incorporated and headquartered in India with substantial operational and manpower presence in-country, owned and controlled exclusively by Indian citizens or Overseas Citizens of India (OCIs). These requirements reflect policy intent to build indigenous semiconductor capabilities while retaining ownership within India's diaspora network.
Exit provisions establish clear repayment expectations across funding modalities. Seed funding and equity co-investment recipients must repay either the aggregate seed funding plus prevailing market value of government equity holdings, or 1.5 times total financial support, whichever is higher. Royalty-financed companies face differentiated exit costs: 1.5 times support for exits within four years, or 2x support for longer-tenure positions, creating economic incentives for sustained growth and technology development timelines.
Startups and MSMEs constitute the primary beneficiary category, eligible for milestone-linked seed funding capped at Rs 15 crore or 50% of project costs, whichever is lower. This grant structure is paired with equity co-investment options for companies that have already demonstrated market traction by securing venture capital or private equity commitments. The co-investment terms mirror those negotiated with private investors, creating alignment between government and commercial capital sources and reducing the effective dilution faced by founding shareholders.
Larger eligible companies access complementary funding channels, including royalty financing arrangements where government support is recovered through 5% of net product or technology revenue until repayment reaches 1.5 times the initial government contribution. This structure enables capital-intensive semiconductor development without immediate equity dilution, addressing a critical financing gap for companies scaling production-ready technologies. Companies may alternatively opt for equity co-investment on equivalent terms to those available for smaller entities.
The scheme imposes strict eligibility criteria centered on domestic incorporation and control. Participating companies must be incorporated and headquartered in India with substantial operational and manpower presence in-country, owned and controlled exclusively by Indian citizens or Overseas Citizens of India (OCIs). These requirements reflect policy intent to build indigenous semiconductor capabilities while retaining ownership within India's diaspora network.
Exit provisions establish clear repayment expectations across funding modalities. Seed funding and equity co-investment recipients must repay either the aggregate seed funding plus prevailing market value of government equity holdings, or 1.5 times total financial support, whichever is higher. Royalty-financed companies face differentiated exit costs: 1.5 times support for exits within four years, or 2x support for longer-tenure positions, creating economic incentives for sustained growth and technology development timelines.
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