The semiconductor industry in Israel has been a bedrock of innovation, growth and investment for decades, creating a strong business ecosystem in the country. Proof of that came earlier this year when US chip giant Intel announced plans to buy Israeli chipmaker Tower Semiconductor for $5.4 billion.

Citing Israel as an example of a country that lacks a local market but has still successfully produced many fabless businesses, Celesta Capital partner Ganapathy Subramaniam points out that there is no need for the end customer of advanced semiconductor products must also be present at the place of manufacture of the products. He made the comment in the context of India’s plan to become a semiconductor manufacturing hub. “There is something more that exists in creating fabless production. China did it in a way. She built local businesses with the local market and then went overseas. We don’t have that luxury in India today because electronics companies don’t consume the chips we make. But, at the same time, there is the Israeli model which has succeeded in creating fabless businesses when the local market is almost non-existent,” he said during a speech at the recent Semicon India 2022.

Confirming what Subramaniam said, Pradeep Vajram, executive chairman of AlphaICs Corporation, a fabless semiconductor company, said a local market wouldn’t necessarily help. Speaking more about the challenges for the industry, he said investment was a critical element for the semiconductor space. “It’s a long process and very patient capital is needed. Despite this, I would say there are a handful of VCs that have helped tech companies. We certainly need more to succeed. And the only way to do that is to have a success story. Once the success story is there, I’m sure many VCs will change the way they invest in semiconductor companies,” he says.

According to a report by Deloitte, the global semiconductor chip industry is expected to reach around $600 billion in 2022. The Indian Electronics and Semiconductors Association (IESA) estimated the Indian semiconductor market drivers to $27 billion in 2021 and forecasts it will reach $64 billion in 2026.

Parag Naik, CEO of Saankhya Labs, a wireless communications software company, explains why it has been difficult for the industry to grow in India, said evaluating the technology as a business model was not straightforward . “If you are a deep tech player, you know the technologies. VCs in India may not have the operational experience. Another group of people are those who only invest in you when they have blind faith. But someone has to take that initial risk and that’s where the government has to step in and set up a fund. It will help to have some success stories and then you will probably get a bigger ecosystem,” he said.

Digging deeper into the approach semiconductor companies in India should take to facilitate the journey, Subramaniam said business development talent should be sought from the start. “For a fabless company, we have to start thinking about including someone from business development way ahead in the cycle. And I see that in China. And we’ve invested in companies in China where a founding member would have been from Korea, one from Taiwan and together they are making the right business contributions to the team, so just as fabless companies in the US have large operations in India, the Indian team should also not hesitate to go hire business resources, whether from China, Korea, Taiwan or the U.S. Such a strategy, he added, would only prove crucial in approaching a global market and clearly articulating the This, in turn, would be beneficial for VCs.

The IESA has said that India will account for between $85 billion and $100 billion of the $600 billion global market by 2030. Now is the time for the country to make huge strides in the design space without plant. The pandemic has shown more reasons why India needs to be atmanirbhar on this front.

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