Bluehill VC is ramping up its investments in Indian startups developing fab-side technologies. The venture capital firm is advised by Intel veteran and "Father of the Pentium chip" Vinod Dham. This sector has received limited interest from most local investors so far.
Most venture funding in India's semiconductor sector has traditionally flowed toward fabless design companies. Bluehill, however, has begun placing early bets on technologies that support semiconductor manufacturing.
Breaking new ground in metrology
Bluehill is finalizing an investment in a company developing metrology solutions for fabs, with an acoustic atomic force microscope that allows manufacturers to inspect wafers in real time, similar to how ultrasound scans the human body.
"Up to half of a wafer's time in the fab is spent on metrology," said Manu Iyer, general partner at Bluehill VC. "One misstep in the process can render an entire wafer worthless, which is why metrology plays such a critical role. It's a multi-billion-dollar opportunity, and one of our portfolio companies is developing breakthrough technology to transform this space."
India's semiconductor momentum builds
Bluehill's strategy comes at a time when India's semiconductor sector is gaining significant traction. The government's Semicon India Programme has allocated INR76,000 crore (US$9.1 billion) to promote semiconductor and display manufacturing, offering up to 50% financial support for setting up fabs, display units, and ATMP or OSAT facilities.
A dedicated INR1,000 crore fund has also been announced to support design and innovation-led efforts across the ecosystem. India is also aiming to roll out its first domestically packaged chip by the end of 2025, marking a key milestone in its efforts to build self-reliance in advanced electronics.
These policy measures are being accompanied by large-scale industrial activity. The Union Cabinet has approved four semiconductor manufacturing projects worth approximately INR4,594 crore to be established in Andhra Pradesh, Odisha, and Punjab.
In Gujarat, CG Semi is preparing to begin pilot operations at its INR7,600 crore OSAT facility in Sanand, with full-scale production scheduled for 2026. Meanwhile, the Tata Group's US$10 billion fabrication plant in Dholera is moving forward alongside other packaging initiatives. Micron Technology's advanced packaging facility, also in Sanand, is on track to start production by late 2025 or early 2026.
Together, these developments are setting the foundation for a more complete and more resilient semiconductor ecosystem in India. For investors like Bluehill, this expanding infrastructure signals growing opportunity in fab-side technologies and reinforces confidence in India's ability to integrate more deeply into the global semiconductor supply chain.
Talent pool shows promise
India's limited talent pool in semiconductor manufacturing has deterred some investors, but Iyer sees encouraging signs.
"We are seeing people who have worked at Intel and TSMC returning to India to build companies," he said. "That pool is growing, and strong founder backgrounds are one of the main criteria we look for."
Government support has so far favored design through the Design Linked Incentive (DLI) scheme. However, Iyer expects this to change with more support on the manufacturing side coming soon.
Diversifying the investment pipeline
Bluehill is actively tracking companies in fab-related areas. Alongside these, the fund has committed to two fabless design investments, including one led by former Intel engineers working on an AI inference chip and another developing healthcare-focused chips.
"We do not view fab-side bets as riskier than other deep tech investments," Iyer said. "Software is easier, no doubt, but within semiconductors, there is room for hardware innovation. For us, it comes down to strong founders and fundamental innovation with a global market in mind."
By venturing into areas traditionally dominated by global suppliers, Bluehill aims to position itself as one of the first Indian venture funds to build a portfolio that spans both fabless design and fab-side technologies. The firm is signaling a broader bet on India's place in the global semiconductor supply chain.
Fabless and fab-side synergy
Bluehill is also investing in fabless design startups, but Iyer argues the two must develop in tandem.
"Fabless design cannot exist in isolation. It needs fab technologies and metrology to work," Iyer said. "Companies like ASML and Lam Research make equipment worth hundreds of millions of dollars, but those systems depend on constant calibration. That calibration itself is a multi-billion-dollar opportunity, and that's the layer we are targeting."
Article edited by Jerry Chen
