Startup funding in the Middle East and North Africa (MENA) decreased to $941 million in the first quarter of 2026. This represents a 21.5% quarter-on-quarter decline and a 37% drop compared to the same period last year. Geopolitical tensions, particularly escalating conflict involving the US, Israel, and Iran, and the subsequent blockade of the Strait of Hormuz, were identified as key factors contributing to investor caution and a slowdown in deal activity. January started strong with nearly $500 million across 59 deals, but by February, investment activity dropped to $326.6 million, and March recorded one of the weakest funding months with fewer than $50 million raised by just 17 startups.
The United Arab Emirates led regional funding in Q1, attracting $625.8 million across 46 deals, significantly outpacing Saudi Arabia, which saw 57 startups secure $156.7 million. Egypt ranked third with $86 million from 12 transactions. Sectorally, Fintech continued to dominate, accounting for 46% of total investment with 25 startups. Proptech followed with $228.6 million across 12 deals, and foodtech secured $60 million through three transactions. While B2B startups had a higher deal count (74 transactions), B2C startups attracted the majority of the capital, with $564.6 million deployed across 43 deals.
International investor participation weakened significantly, with their share of funding dropping from 41% in Q1 2025 to 26% in Q1 2026. US-based investors, in particular, pulled back sharply, with their funding share decreasing from 22% to just 5%. This reflects a broader trend of 'more selective' cross-border capital deployment and a preference for local investors. Despite the overall decline, early-stage startups continued to attract the most deals, with 110 startups raising $233 million, though late-stage funding remained subdued with only seven rounds totaling $113 million, indicating ongoing caution for scaling businesses.
In related news, June 2026 saw MENA startup investment fall to $148.2 million across 41 startups, a 76% decline from the previous month, though it was still 190% higher than June 2025. This suggests some recovery from earlier regional turmoil. However, overall funding in the first half of 2026 indicates a significant plunge. In contrast, 2025 saw record high venture capital funding in the Middle East, with $3.8 billion across 688 deals, a 74% increase from the previous year, driven by international capital and strong activity in Saudi Arabia and the UAE.
