Exclusive: India Needs Guts To Invest In Semicon Start-Ups Even If 80% Fail, Says Tessolve CEO

When we first started, we set up very advanced test facilities, which were a bit Capex intensive. We had to spend around $10 million. Initially, we had venture capital support and were fortunate to have some very good VC funds, including Qualcomm Ventures and Applied Ventures. We also had Jeffco, based in Asia, and Reliance Ventures as investors.

As we progressed, in 2016, Hero Electronix showed interest in the company and eventually bought out all the venture capital funds, becoming the majority investor.

During the COVID period, as we continued to grow, most of the fundraising we did was mainly for expansion, since we were fairly cash flow positive in day-to-day operations. The funds we raised were primarily used for expanding, acquiring other companies that aligned with our goals, and setting up new labs and infrastructure.

At that time, we raised another $40 million from a Singapore-based PE fund called Novo Tellus Capital. Our latest fundraise is from TPG, which is aimed at accelerating future growth and making some inorganic investments. In this round, there’s a huge interest from several funds—more than 30 global, well-reputed PE funds. Apparently, this is the largest fundraise by a semiconductor engineering solutions company in India, which is really encouraging.

A lot of investments were going into semiconductor start-ups around 2009. But over time, many VCs pulled back from the semiconductor industry, and investments shifted more toward software and other sectors. As a result, a lot of start-ups, even in Silicon Valley, dwindled.

But thanks to COVID—and of course, the rise of AI-based applications—there’s been a huge renewed interest worldwide in semiconductors. A lot of investments are coming in, and many AI-focused start-ups are emerging. So in general, VC interest was high initially, then declined, and now it’s back up again.

If you look at this from the India perspective, the government took proactive steps to jumpstart the ecosystem with good PLI and DLI schemes. Additionally, geopolitical tensions with China have prompted many companies to seek alternatives outside of China, and India has emerged as a favorable destination—with strong human capital and expansion potential.

So this is a good confluence of factors: geopolitical challenges and proactive government initiatives, which have created renewed interest in India. However, a lot of funding is still government-driven in India. There’s definitely room for improvement.

Globally, there’s plenty of funding in services-based companies, and there’s significant interest from global funds—including ours—in product-based companies. Product start-ups inherently carry more risk, and risk capital is mostly available in places like Silicon Valley.

That’s where improvement is needed. Perhaps India could adopt a model similar to China’s, where the government creates a large fund—maybe $1 or $2 billion—in which both private equity and venture capital can participate. There’s been discussion about this, but it hasn’t fully materialised yet. If that happens, it could create substantial momentum for semiconductors, especially for product start-ups.

In India, a lot of investment is going into e-commerce and software start-ups. It’s just a matter of demonstrating success. Once there’s one success it triggers follow-on investment. A lot of capital starts flowing in.

The capital is coming from Silicon Valley. There’s a lot of opportunity in India for India-based start-ups as well. For example, cameras are one area where many chips are currently sourced from China, and due to security risks, the government is encouraging chip design within India. This creates a strong opportunity for companies here to design camera-based chips, consumer applications, automotive solutions, and more.

Additionally, many of these don’t need to be built on cutting-edge process nodes. They can be designed using older nodes like 28 nanometer, 22 nanometer, and similar technologies.

These are great opportunities because they don’t require a huge amount of capital upfront. I see a lot of activity happening in India in these areas, and once some of these start-ups achieve success, they’ll be able to take on more risks and expand into other segments.

There’s a good design talent here—about 20% of the world’s designers are in India. Access to capital is very important, though. The chip companies in India don’t necessarily have to design only for the domestic market; they can design for the global market as well. But what’s needed is a lot more risk capital.

Some of the companies you mentioned got VC funding from Silicon Valley to get started—whether it was $40 million, $100 million, or some AI start-ups raising $500–600 million. Without that level of support, it’s very difficult for such companies to emerge from India.

That situation could change if a large, well-structured risk capital fund is set up. The current DLI schemes provide some support, but the amounts are too small to make a significant impact.

We have all the capabilities to develop a product, but we do it for other companies. We don’t want to compete with them, but we do have IPs in-house. For example, we have an image signal processing IP that’s used in many automotive vision-based applications. We also have automotive safety island IPs and develop a lot of automotive gateway products. These solutions mainly help accelerate our designs.

Currently, we’re working on designing advanced automobile processors, power management products, and other applications. We continuously invest in building and maintaining these capabilities. While we don’t have any immediate plans to sell our own products, we enable many companies including most of the top 20 semiconductor companies—to accelerate their products to market.

We’re very excited about the ecosystem in India. We’ve invested over $30–40 million in setting up these labs so that start-ups don’t have to start from scratch—they can leverage our equipment and expertise. Recently, we conducted a large orientation for over 30 start-ups in India to show them our infrastructure and how we can help accelerate their work. They can focus on product ideas, and we’ll handle the implementation.

I think we can step up the game with the DLI 2.0 scheme, which has higher allocations. But we should be prepared for the fact that 8 out of 10 will fail. We need to have the guts to invest despite that. If even two of them become big successes, it’ll be well worth it.

Encouraging a few hundred start-ups, some of them will definitely succeed, whether in India or globally. But that will require much more capital. Whatever we’re allocating for manufacturing, why can’t we do the same for product companies? That’s how India can really benefit.

If we build India-based product companies, they will certainly use our manufacturing. They’ll create demand and can also succeed in the global market.

We’ve never thought of it. We’ve always wanted to be headquartered in India, and we take a lot of pride in being an India-headquartered company. We have offices in 12 different countries—whether it’s the US, Singapore, Malaysia, the Netherlands, Germany, and others. We’ve built strong centers in all these locations where customers feel comfortable working with us, either directly with India or through these regional offices.

We have a large and well-maintained data lake of products developed over the years, and we’re actively developing AI tools. In the semiconductor industry, it’s still a bit early, but over the past year and a half, we’ve invested heavily in building our own tools. We’re already seeing some benefits from automation.

My view is similar to what happened in the early 90s when EDA (electronic design automation) tools became more efficient. The work didn’t decrease—instead, people started designing more complex chips and producing more of them because automation made it easier.

Similarly, AI will enable faster and more cost-effective product cycles. It will allow people to plan more products and handle more complex designs. I don’t see it replacing a huge workforce; rather, if teams are currently planning only two products due to budget constraints, AI can help them work on five products with the same resources. That’s what I believe AI will enable.

AI is being used across all aspects of our work. It’s hard to pinpoint an exact percentage, but we’re rolling out AI-driven automation in all areas—including HR, legal, and engineering development.

I think we should be grateful that Tessolve operates in 12 countries. In some places—like Malaysia or Germany—it’s tough to find enough graduates because many companies are competing for the same talent. We typically look for bachelor’s degrees in electronics or electronics and communications.

The good thing about India is that thousands of fresh graduates enter the workforce every year, providing a strong talent pool. The focus now should be on improving the quality of this talent. We’ve been working with the industry for 20 years. When we started in 2004, it was hard to find industry-trained engineers, especially in certain semiconductor segments. Since then, we have trained over 6,000 engineers.

We have partnered with universities by designing equipment to provide practical training and conduct programs for professors to bring industry exposure to students. Many other companies are also contributing, and this collaboration can be further strengthened.

In countries like the US, there’s better collaboration between universities, industry, and venture capital, which helps ideas flow more easily. India can improve in this area, but the raw talent coming out here is still excellent and offers fertile ground for training and growth.

For example, in Romania, fewer than 2,500 electronics engineers graduate each year. With multiple companies competing, hiring becomes a challenge. Compared to that, India is a great place for talent.

IPO is always a possibility. We are one of the fastest-growing and largest standalone semiconductor solutions companies in the world, growing at over 20% every year. We have great customer recognition and a strong brand. Our main focus is on building and making this the world’s number one platform for semiconductor engineering. An IPO could be an important milestone along the way.

We typically look for companies that can add capabilities to our portfolio—we don’t acquire companies just for revenue. We look for opportunities in interesting geographies where we don’t have much presence.

For example, in January, we acquired Dream Chip in Germany, which greatly enhanced our European presence and gave us access to advanced system-on-chip capabilities in the automotive industry. Similarly, we’re looking for companies with strong capabilities in regions like India or other parts of the world.