Venture capital funding in the Middle East and North Africa (MENA) experienced a substantial downturn in the first half of 2026. While the overall funding figure might appear stable on the surface, a deeper look reveals a significant fall in deal count, reaching the lowest quarterly figures in years. According to Philip Bahoshy, CEO and founder of MAGNiTT, the capital that did flow concentrated heavily into a small number of mega-deals, which likely had been in motion for six to nine months prior to their announcement. This concentration, he notes, effectively masked a much quieter reality for the broader market, particularly impacting early-stage activity, which is sharply down year-on-year.
The real impact of ongoing conflicts has not fully manifested in the data yet, mirroring a pattern observed in 2020 where the first half held up before a significant pullback in Q3. Q1 2026 alone saw MENA startup funding drop to $941 million, a 21.5% quarter-on-quarter decline and a 37% year-on-year drop, primarily due to escalating geopolitical tensions. March recorded one of the weakest funding months, with under $50 million raised by just 17 startups. June 2026 continued this trend, with investment falling to $148.2 million, a 76% decline from the previous month.
The United Arab Emirates led regional funding in Q1, securing $625.8 million across 46 deals, significantly outpacing Saudi Arabia's $156.7 million from 57 startups. Egypt ranked third with $86 million across 12 transactions. Fintech remained the top sector, accounting for 46% of total investment, followed by Proptech at $228.6 million and Foodtech at $60 million. Despite B2B startups driving deal activity, B2C startups attracted the majority of capital, totaling $564.6 million across 43 deals.
The outlook for the second half of 2026 remains uncertain, with expectations of continued dampening investor confidence due to prolonged geopolitical instability and inflationary pressures. Particularly vulnerable sectors include logistics, travel, and e-commerce. Investors are anticipated to adopt a more cautious approach, delaying capital deployment until greater clarity emerges regarding the evolving geopolitical landscape. This cautious stance could lead to a challenging second quarter and a longer recovery cycle for both startups and investors in the region.
