The first half of 2026 delivered a surprising twist to the typical stories about what cities startup investors favour. 

Although the top startup hubs — Bengaluru, Delhi NCR and Mumbai — continued to maintain their lead in funding trends, investment activity significantly picked up beyond the aforementioned startup hubs.

As per Inc42’s’ Indian Tech Startup Funding Report, H1 2026, Hyderabad recorded the highest year-on-year surge in funds deployed during the half among India’s top startup hubs. 

Hyderabad-based startups raised over $226 Mn in the first six months of 2026, representing a 45% YoY increase in funding. Deal activity in Telangana’s capital also surged by 83% YoY to 22 deals.

The uptick came primarily at the behest of Hyderabad-based spacetech startup Skyroot Aerospace raising $60 Mn at a $1.1 Bn valuation. Besides, the likes of Dhruva Space, Recykal, and Liquidnitro Games were other Hyderabad-based startups that landed notable funding rounds in the period. 

In terms of year on year growth, this is the highest among the top five hubs – Bengaluru, Delhi NCR, Mumbai and Chennai.

Trailing Hyderabad in terms of YoY growth, Chennai funding rose 26% YoY to over $87 Mn. However, its deal count fell by 28% to 13 deals. 

Meanwhile, Bengaluru remained India’s most well-funded startup hub, attracting over $2.7 Bn across 165 deals. This marked an 8% increase in funding value and a 15% growth in deal count YoY. 

Beyond Bengaluru, which has long been hailed as India’s startup capital, the other two tier I startup hubs witnessed a contraction in capital deployed during the half. While funding in the financial capital fell 31% YoY to over $587 Mn across 60 deals, funding in Delhi NCR fell by 39% YoY to just over $917 Mn. This is despite a 16% increase in deal count to 134 deals. 

Zooming out, Indian startups raised over $5.2 Bn cumulatively across 501 deals in H1 2026. While the total funding value has dropped 9% YoY, the number of deals struck during the period grew by 7%. 

With that, here’s a look at how top startup hubs performed during the half. 

Hyderabad’s Startup Ecosystem Is Growing Fast 

While Bengaluru and Delhi NCR continue to dominate India’s startup funding landscape in absolute terms, Hyderabad emerged as the fastest-growing ecosystem on a year-on-year basis. Does this signal a long-term shift or is it a flash-in-the-pan moment? 

Investors believe that this doesn’t necessarily mean that traditional startup hubs are falling behind. Bengaluru and Delhi NCR house India’s most mature startup ecosystems, netting the highest portion of cheques over the years. As a result, these ecosystems have always operated with a higher comparative funding base.

“Bengaluru and Delhi NCR are very mature ecosystems. Since the base is very high, the percentage growth looks small when compared to high growth in other startup hubs,” Endiya Partners’ senior associate Medha Kannapally shared.

Besides, just a handful of outlier deals can significantly skew the numbers, which makes it hard to identify long-term trends.

Take Meta’s recent $900 Mn investment in CRED. The single transaction accounted for nearly a third of the total funding attracted by Bengaluru during the preceding half. Excluding that deal, the city’s funding would have declined by nearly 30% YoY.

Meanwhile, the changing shift is also underpinned by a realignment of investor interest in frontier technologies.

During the half, the advanced IoT & hardware segment and AI sectors saw the biggest YoY gain in funding in H1 2026. Meanwhile, ecommerce – the top funded sector in Delhi NCR – saw a 35% plunge in funding value and stayed flat in terms of deal count. 

Delhi NCR-based startups are largely focused on consumer tech segments like ecommerce, fintech, healthtech, Merak Ventures’ founding partner Sheetal Bahl believes. 

On the flip side, increasing investor interest in deeptech is a structural advantage for Hyderabad. The city boasts a steady pipeline of high-quality talent emerging from defence research institutions, GCCs, and its established pharmaceutical industry, Endiya Partners’ Kannapally shared.

She believes that Hyderabad founders typically have a capital-efficient mindset, making them well suited for sectors such as deeptech that require patient capital. 

“We have never seen Hyderabad startups raising huge rounds and burning lots of cash. They focus on profitability first,” Hyderabad Angel Fund’s (HAF) managing partner Rathnakar Samavedam noted, citing examples of startups like Keka and Darwinbox.

The Changing Geography of India’s Startup Ecosystem

Looking at the bigger picture, the broader trend towards decentralisation of the startup ecosystem is real, according to the investors who spoke to Inc42. 

“There is an emerging trend of diversification of startup hubs. Data suggests that there are sector specific clusters getting created in each of these cities. For example, Hyderabad is doing really well in deeptech, especially aerospace, life sciences, and enterprise and AI. There are globally competitive spacetech companies like Dhruva and Skyroot being built out of Hyderabad. Meanwhile, Chennai is becoming a cluster for semiconductor companies and contract manufacturing,” Kannapally said.

AI is a major driver of the broader decentralisation trend as it has democratised capabilities of creating product prototypes and GTM strategies, levelling the playing field between founders from Tier I cities and the rest of India, HAF’s Samavedam shared.

The propagation of frontier technology in smaller startup hubs come at a time when larger cities Bengaluru, Mumbai, and Delhi are also becoming overcrowded, putting pressure on the resources of the spaces. 

“India has always had startups coming out of smaller cities but they mostly attacked regional problems, so while they were decent businesses, they were not venture scale businesses. But the shift we are seeing is that many of these founders are becoming more cosmopolitan and tackling national or even global problems,” Merak Ventures’ Bahl said. 

Clearly, investors are increasingly confident in backing startups based out of cities aside from the traditional startup hubs. With the decentralisation trend continuing, a new crop of cities appears poised to enter the conversation. But will the current big name hubs like Bengaluru and Delhi NCR fade away or remain significant contributors? That remains to be seen. 

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