Startup funding in tier 2 cities in India: the gap in numbers

A strong company two hours from a metro still has to travel to be heard. The funding data shows how wide that distance is.

Start with the count. A Press Information Bureau backgrounder from June 2026 says India has over 2.3 lakh DPIIT-recognised startups, and nearly 50 per cent of them come from Tier-II and Tier-III cities. Now look at the money. It doesn't follow the count, and if you invest early, that gap is worth understanding. Our map of how capital moves in India covers the national picture; this note cuts it by city.

How wide the tier 2 funding gap is

The gap is wide. Nearly half of India's recognised startups come from Tier-II and Tier-III cities, but in 2026 about 87% of tech startup funding went to five cities. The two counts use different scopes, so read them as direction, not a precise ratio. The direction is clear, though: companies are spreading, and money isn't.

Here's the city split from Tracxn's data on Indian tech startups for 1 January to 21 September 2026, when they raised $10.3B in total:

• Bengaluru: $4.4B, or 43%, up from 38% a year earlier.
• Mumbai: $1.8B, 18%.
• Gurugram: $1.6B, 16%.
• Noida: $660M, 6%.
• Delhi: $446M, 4%.

Add those up and you get about 87% of the money in five places. Tracxn tracks tech companies only. DPIIT counts every recognised startup, tech or not. So we won't claim an exact ratio. But you don't need one to see the shape.

The state view says the same

State counts sharpen it. As of 31 March 2026, Karnataka had 22,600+ recognised startups, by a ministry statement reported by Inc42, out of over 2.23 lakh nationally. That's about one in ten. Yet Bengaluru alone took 43% of tech funding this year. Maharashtra had the most recognised startups, at 38,660+, and Mumbai took 18%. Uttar Pradesh had 21,960+. Its money mostly shows up as Noida.

Why companies outside the metros get heard less

Distance costs a founder referrals, not quality. Early investors find their deals through people they know, and those people cluster in a few cities. A company in Indore or Coimbatore can be just as good as one in Bengaluru and still reach fewer investors, because fewer warm referrals start near it.

The firmest evidence on sourcing is global, not Indian. In a survey of 885 venture capitalists by Gompers, Gornall, Kaplan and Strebulaev, over 30 percent of deals came through professional networks and 20 percent were referred by other investors. Only 10 percent came inbound from company management. The respondents were mostly American, and no comparable Indian split is published. Still, if Indian investors source anything like this, a founder's postcode decides how many referrals reach them. And Bengaluru's share went up this year, not down.

Half of India's recognised startups sit outside the big metros. The money mostly doesn't travel to them.

What the government is doing about it

Public money is now aimed at the gap. The second Fund of Funds is told to promote investment beyond major metro cities, and DST and MeitY run incubator programmes written for Tier-II and Tier-III cities. None of it replaces investor attention. It does put more evaluated companies within your reach.

The Union Cabinet approved the Startup India Fund of Funds 2.0 with a Rs 10,000 crore corpus, IANS reported in February 2026, with a brief that includes investment beyond major metro cities. A January 2026 PIB backgrounder lists the rest. NIDHI-iTBI, from DST, focuses on Tier-2 and Tier-3 cities. MeitY's GENESIS aims to scale about 1600 technology startups in Tier-II and Tier-III cities, with an outlay of Rs 490 crore over five years. And AIM's LIPI programme plans 30 Vernacular Innovation Centres across India's 22 scheduled languages, for innovators and investors who don't work in English. Our guide to government funding for startups explains how each scheme reaches a company.

What the gap means if you invest early

For an early investor, the gap is a sourcing problem you can work on. Companies outside the metros meet fewer investors, so you may see them with fewer other investors at the table. You'll need routes to reach them and a diligence process that starts from public filings, so travel doesn't decide which companies you look at.

Think about your own last ten deals. How many came from a city you've never flown to? If the answer is none, you're seeing the same slice of the country as everyone else in your network, and competing with all of them for each company. That's a habit. You can change it.

Three things help. First, the local incubators: NIDHI-backed Technology Business Incubators and Atal Incubation Centres sit in many of these cities. Second, state startup programmes, which know their companies by name and can tell you which ones have filed, hired and sold. Third, a fixed order of checks you can start remotely, as in our guide on how to evaluate early-stage startups. Company filings, GST returns and the cap table read the same from Pune or from Patna. Meet the founder on a video call first. Travel once the filings hold up. More on routes in where early-stage deal flow comes from.

At MyStartupValley, our team evaluates each startup on six due diligence parameters: founder verification, market sizing, cap table, legal, client agreements and compliance. There are 5,000 founders from incubators at IITs, IIMs and accelerators running on MSV, and you see them with sector and stage fit in your own dedicated workspace, wherever they're based. See the investor workspace.

Questions

Do startups in tier 2 and tier 3 cities in India get funded?

Some do, but the money is concentrated. Nearly half of DPIIT-recognised startups come from Tier-II and Tier-III cities, yet Tracxn counted 87% of tech startup funding from January to September 2026 going to Bengaluru, Mumbai, Gurugram, Noida and Delhi.

Why is startup funding concentrated in a few Indian cities?

Investors find deals through people. In a survey of 885 venture capitalists, mostly in the US, over 30 percent of deals came through professional networks and only 10 percent came inbound. Investor networks sit in a few metros, so companies outside them get fewer warm referrals.

What is the government doing about the regional funding gap?

The Startup India Fund of Funds 2.0, a Rs 10,000 crore corpus approved in February 2026, aims to promote investment beyond major metro cities. DST's NIDHI-iTBI focuses on Tier-2 and Tier-3 cities, and MeitY's GENESIS aims to scale about 1600 startups there.

How can investors find startups outside the metros?

Start with the incubators that sit in those cities, including NIDHI-backed Technology Business Incubators and Atal Incubation Centres, and state startup programmes. Run first checks on public filings, so distance doesn't decide which companies you look at.

Sources: Press Information Bureau, Empowered Youth, Stronger Nation (backgrounder), 13 Jun 2026 · Press Information Bureau, A Decade of Startup India (backgrounder), 15 Jan 2026 · CXOToday, Tracxn 9M 2026 report: India tech funding rises 7% to $10.3B despite 38% drop in deal volume, 24 Sep 2026 · Inc42, Centre recognises record 55,200 startups in FY26, 18 Apr 2026 · IANS, Govt approves Rs 10,000 crore Fund of Funds 2.0, 14 Feb 2026 · Gompers, Gornall, Kaplan and Strebulaev, How Do Venture Capitalists Make Decisions?, NBER Working Paper 22587, 2016 (NBER Digest, Dec 2016)