Semiconductor startups warn the government against a rigid DLI framework
Semiconductor startup founders are urging the government to exercise caution as it considers a shift in the design-linked incentive (DLI) scheme for chip design. The proposed DLI 2.0 framework, which aims to provide equity- and debt-linked support, has sparked concerns among industry experts. They warn that rigid rules and bureaucratic delays could undermine the very ecosystem the scheme aims to strengthen.
Industry executives generally support the idea of deepening state support for chip design companies, but they have raised several critical issues. One of the main concerns is the compatibility of the new framework with venture capital (VC) investors. The structure of funding instruments and the need for continuity for firms transitioning from DLI 1.0 are also key considerations.
A startup founder highlights the importance of global investor friendliness for an equity-linked approach. They argue that restrictions around intellectual property (IP) residency and acquisition could significantly deter foreign VCs, as it complicates exit pathways, a crucial aspect of venture returns. This founder suggests that overly prescriptive IP rules might drive international capital towards more flexible jurisdictions.
The executive calls for 'light-touch regulation' that protects strategic interests without over-controlling ownership or commercialization rights. They emphasize the need for consultation with startup founders and VCs during the rule-making process.
Another startup executive differentiates between debt- and equity-linked support. They describe debt-linked funding for companies at the commercialization stage as a 'good idea' due to its non-dilutive nature and its ability to attract private capital. However, they question the rationale behind government equity participation, suggesting that startups often prefer VC funding over state equity due to bureaucratic concerns.
The founder argues that equity participation should only be considered if it offers a premium to private investors in the same round. They also question the difference between this mechanism and the existing research, development, and innovation (RDI) fund.
Furthermore, the executive stresses the importance of retaining a grant-based model for early-stage R&D-intensive companies, similar to DLI 1.0. Removing grants, they warn, could hinder the pipeline of future chip designers.
A semiconductor founder highlights the execution risks and cash-flow pressures faced by startups that have already made technical progress under DLI 1.0. They urge the government to prioritize continued support for companies that have successfully built test chips and demonstrated production readiness, or those that have raised significant additional capital since the first phase of the scheme.
The founder points out that lengthy detailed project report (DPR) requirements and extended evaluations are already causing delays, which have real financial consequences for startups preparing to move into production. These delays result in substantial pending payments to IP vendors, fabs, and advanced packaging partners.
In contrast, the China Integrated Circuit Industry Investment Fund, known as the Big Fund, is a notable example of a government-led investment vehicle. Established in 2014 with approximately $200 billion in pledges, it is dedicated to investing in the semiconductor sector. The Big Fund primarily operates through equity investments in companies, providing non-subsidy support.
The semiconductor startup ecosystem emphasizes the need for DLI 2.0 to strike a balance between strategic oversight and commercial flexibility. They argue that continuity for proven players, non-dilutive support for commercial-stage firms, grants for early R&D, and VC-aligned rules are essential for India to remain competitive in the global semiconductor race.
