https://arab.news/z6gms
RIYADH: Middle East and North Africa venture funding showed signs of deeper stress in the first half of 2026, with startup investment falling 22 percent year on year to $1.35 billion while deal count dropped 41 percent to 214 transactions, the lowest half-year total since at least 2022, according to MAGNiTT.
The sharper warning signal was not the decline in capital, but its increasing concentration among fewer startups.
Two mega-rounds worth a combined $480 million cushioned the headline decline, while the 10 largest transactions accounted for 58 percent of all funding during the period, MAGNiTT said in its “State of Venture Capital: H1 2026 Review” report.
The Dubai-based venture data platform said the first-half figures suggest the full effect of regional conflict and tighter cross-border capital flows may not be visible until the third quarter.
Funding was broadly unchanged between the first and second quarters, at $679 million and $667 million, respectively, but the number of deals fell to 90 in the second quarter, the lowest quarterly figure in the available data series.
Philip Bahoshy, founder and CEO of MAGNiTT, said headline funding figures do not fully reflect the underlying slowdown because much of the capital deployed in the first half likely came from deals that were already in motion six to nine months earlier.
“The sharper signal is early-stage activity, the truest measure of ecosystem appetite, and it has slowed markedly. This mirrors the 2020 pattern: stability in the first half, followed by a third-quarter adjustment,” he added.
The MENA slowdown comes as global venture funding continues to be driven to record levels by artificial intelligence and mega-rounds.
Crunchbase data showed global startup investment reached $510 billion in the first half of 2026, already exceeding the $440 billion invested in all of 2025, while OpenAI and Anthropic alone accounted for $217 billion, or 43 percent of global first-half funding.
That makes MENA an outlier in terms of headline funding growth, but not deal activity.
CB Insights said global deal count fell to a decade low in the second quarter, even as mega-rounds captured 81 percent of all capital, reflecting a broader venture market in which investors are concentrating larger investments in fewer companies.
By comparison, MENA startups raised $1.35 billion across 214 deals in the first half of 2026, according to MAGNiTT, meaning the region represented only a small fraction of global venture funding on a scale-comparison basis.
The divergence underscores the region’s limited exposure to the global artificial intelligence mega-round boom that has driven funding records in the US and other major markets.
The UAE remained the region’s largest venture market, attracting $895 million, or 66 percent of total MENA funding, despite a 37 percent year-on-year fall in deal count.
More than 60 percent of UAE startup funding was concentrated in three BlueFive Capital-backed deals: CargoX’s $250 million round, Mal’s $230 million round, and CNTXT AI’s $60 million round, which also included ai71.
International investor participation weakened sharply. International investors accounted for 39 percent of the active investor base, down from 55 percent in 2025, while their share of capital deployed fell to 19 percent from 48 percent.
MENA-based investors supplied 81 percent of total funding in the first half, the highest share in more than five years, according to MAGNiTT.
Early-stage activity also slowed sharply year on year, which MAGNiTT identified as the clearest indicator of investor appetite.
The deal mix shifted modestly toward later stages, with early-growth rounds rising to 18 percent of deals from 14 percent in 2025, while earliest-stage deals fell to 82 percent from 85 percent.
Saudi Arabia ranked second by funding, with startups raising $219 million, down 74 percent year on year. Egypt followed with $142 million, down 29 percent. Morocco and Oman recorded increases, raising $32 million and $22 million, respectively.
Fintech remained the most funded sector in MENA, attracting $617 million, down 9 percent year on year. Transport and logistics rose sharply to $273 million, driven mainly by CargoX, which accounted for 92 percent of funding in the sector.
Enterprise software followed with $115 million, while food and beverage startups raised $76 million and real estate companies secured $72 million.
Exit activity also slowed. MENA recorded 16 mergers and acquisitions in the first half of 2026, down 56 percent year on year and on pace to finish well below the 48 deals recorded in 2025.
Bahoshy said the return of international investors, a recovery in early-stage deal flow after the summer and the stabilization of exit activity would be the main indicators to watch in the second half of the year.
MAGNiTT said those measures would provide a clearer view of ecosystem resilience than headline funding totals.
Publicly listed technology companies in the region showed greater resilience. MAGNiTT’s Tech Index, which tracks 15 major regional technology companies, rebounded 20.9 percent in the second quarter after falling 17.4 percent in the first quarter, ending the first half broadly flat at minus 0.2 percent.
MAGNiTT said the recovery was driven by company-specific momentum, including gains at Talabat, Space42 and Elm, rather than the artificial intelligence-led rally seen in global technology markets.