From founder formation to exits: where MENA’s venture capital journey needs to go next
RIYADH: Venture capital across the Middle East and North Africa has been trapped in a paradox: more money, more international attention and more government-backed ambition, yet still a market that looks small beside the economies it is meant to help transform.
Startups in the region raised $3.8 billion across 688 deals in 2025, a 74 percent year-on-year increase, according to MAGNiTT, while international investors accounted for 49 percent of capital deployed.
That performance was strong in isolation. It was also notable against a global market where capital was increasingly selective.
CB Insights estimated global venture funding at $469 billion in 2025, with US startups alone raising $328 billion, or 70 percent of the total. Crunchbase put global venture and growth funding at $425 billion, with US companies attracting about $274 billion, or 64 percent.
PitchBook’s global figure was higher, at $512.6 billion, reflecting different methodologies, but the direction was the same: venture capital had recovered, and the recovery was led overwhelmingly by the US.
MENA’s headline growth therefore masks its limited scale. At $3.8 billion, the region attracted barely more than one percent of US venture funding by the CB Insights measure, and less than one percent of global VC by PitchBook’s count.
Even Latin America, a market that remains far below its 2021 peak, edged ahead of MENA with $4.1 billion in 2025 funding, according to Crunchbase. Asia, despite a weak year and a six percent decline, still drew $67.5 billion.
The gap looks starker when venture funding is compared with economic size. The US’s 2025 nominal GDP was about $30.6 trillion, meaning its $328 billion in venture funding equaled roughly one percent of GDP.
By comparison, Saudi Arabia and the UAE, which together captured 86 percent of MENA venture funding, attracted $1.72 billion and $1.58 billion respectively, according to MAGNiTT data.
Against economies of roughly $1.27 trillion for Saudi Arabia and about $569 billion for the UAE, that suggests VC intensity remains far below US levels, especially in Saudi Arabia.
This is the core reason MENA still lags global standards: capital inflows have improved faster than market depth.
VC depth gap
Philip Bahoshy, CEO of MAGNiTT, told Arab News that the region has entered a more mature phase, but its depth gap remains visible when measured against economic output.
After more than ten years of venture investment across the region, the challenges of the second decade will be fundamentally different from those of the first, he said.
“The depth gap is real and visible in the data. Between 2020 and 2025, the UAE’s VC-to-GDP ratio reached 0.2 percent, while Saudi Arabia’s was 0.07 percnet. By comparison, VC accounts for 0.8 percent of US GDP and 1.2 percent of Singapore’s over the same period,” Bahoshy added.
Saudi Arabia and the UAE now dominate the funding map, but their dominance also reveals how thin the wider regional market remains.
Egypt, Jordan, and Morocco, as well as Bahrain, Qatar and other ecosystems, produce founders and policy initiatives, but they do not yet absorb capital at the scale required to make MENA a broad regional venture market rather than a GCC-led one.
We need to continue seeing clear exit pathways for companies that can return investments to founders, employees, governments, and investors alike.
Philip Bahoshy, CEO of MAGNiTT
Bahoshy said the concentration of funding in the GCC reflects both the strength of Saudi Arabia and the UAE and the uneven development of the wider regional ecosystem.
“The infrastructure, regulatory clarity, and capital density in Saudi Arabia and the UAE are generating genuine results,” he added.
Bahoshy said the wider regional picture is more complex than a simple two-market story.
“Other geographies across the region are seeing continued development at the early stage, specifically at seed and pre-seed, building ecosystems that serve as a springboard for companies to then scale into GCC markets,” he said.
Stage depth
The second weakness is stage depth. MAGNiTT notes that early-stage activity has grown, but late-stage rounds remain heavily dependent on international investors, with 44 percent of late-stage capital over the past five years originating from outside the region.
“Shifts in global venture sentiment will always impact the MENA venture market,” Bahoshy added.
He said the pressure is most visible in later-stage rounds, where international capital remains an important source of funding.
“Late-stage rounds remain the first pressure point: according to MAGNiTT data, international investors represented 69 percent of Series A and 48 percent of Series B and beyond in 2025, and during the 2023 slowdown, international participation in late-stage rounds dropped to just 17 percent,” he said.
Deployment delay
Third, dry powder has not automatically converted into deployment. Sovereign funds, family offices, funds of funds and corporate venture arms have increased the pool of available capital, but investors remain selective.
Bahoshy said the issue is not a shortage of capital, but slower decision-making during a period of uncertainty.
“The dry powder is not absent. It is looking to identify where the investment opportunities are,” he said, adding: “Capital is patient, and in periods of uncertainty, deployment cycles naturally lengthen as investors take more time on diligence and wait for greater clarity before committing.”
That is rational after the valuation reset of 2022-2024, yet it means MENA’s capital abundance often exists at the institutional level rather than in founder bank accounts.
Global markets show the way
The US shows what scale looks like, even with its own distortions. PitchBook data cited by Fortune showed US VC deal value reaching $339.4 billion in 2025, near 2021 highs, but half of that value went into only 0.05 percent of completed deals.
Crunchbase similarly found that five companies alone raised $84 billion, or 20 percent of global venture funding.
The lesson for MENA is not that concentration is unique to emerging markets; it is that mature ecosystems can absorb concentration because they also have deeper exit markets, larger pools of technical talent and more repeat founders.
Asia offers a more relevant comparison. It is larger and more diversified, but 2025 exposed its own weaknesses. Crunchbase estimated that Asia startup funding fell to $67.5 billion, the lowest annual total in five years, with weakness concentrated in the first half.
Even so, Asia’s scale, led by China, India, Israel, Japan and Singapore, remains far beyond MENA’s. Its challenge is not capital scarcity alone, but uneven policy environments, China’s slowdown and weaker late-stage confidence.
MENA’s challenge is earlier in the cycle: building enough investable companies across enough markets.
MAGNiTT said artificial intelligence accounted for 22 percent of total MENA funding and 29 percent of deal volume in 2025, while fintech remained the most active sector.
This aligns with global flows, where AI dominated venture allocations. But MENA’s AI market is still largely application-led, not infrastructure-led at the scale seen in the US, where multibillion-dollar foundation model rounds reshaped the entire funding landscape.
More exits
The decisive test is liquidity. MAGNiTT has pointed to a recovery in M&A activity, but the exit base remains narrow. MAGNiTT’s FY2025 data highlights only two tech IPOs in 2025 and a median exit horizon of six years, while secondaries remain underdeveloped.
Without predictable exits, limited partners have less reason to recycle capital aggressively into new funds, and founders have fewer proof points that regional scale can produce global-style returns.
Bahoshy said the region’s next phase will depend on strengthening the full venture pipeline, from founder formation to exits.
More companies being set up, with more experienced second- and third-time founders entering the ecosystem, is key, as is regional and international capital.
“We need to continue seeing clear exit pathways for companies that can return investments to founders, employees, governments, and investors alike,” he said, adding: “Until that exit flywheel is working consistently, whether through M&A, IPOs, or secondary transactions, the ecosystem will remain dependent on new capital inflows rather than recycled returns.”
