At a time when the venture capital (VC) landscape is defined by volatility and shifting priorities, understanding the forces at play is more important than ever. Companies navigating the aftereffects of a zero-interest-rate reality face the dual challenge of sustaining growth while pivoting toward profitability.
VC’s roller-coaster ride: is the funding freeze finally over?
Between 2019 and 2021, monetary easing granted start-ups unprecedented access to capital. Easy credit fueled eye-watering valuations and aggressive burn rates. But from 2022 onward, rising rates and tighter debt markets knocked many early-stage ventures off the runway (see figure 1).
Meanwhile, Middle East VC fundraising ticked up 2 percent year-on-year in 2024 to $3.2 billion. Furthermore, 2025 got off to an exciting start with funding reaching $1.25bn (see figure 2). Megadeals—those exceeding $100 million—jumped more than six-fold from roughly $150 million in 2020 to around $1 billion in 2023, driven largely by fintech and retail innovators such as Tamara and Tabby. Saudi Arabia alone accounted for 40 percent of that capital, underscoring the Kingdom’s Vision 2030-powered transformation. Yet exits remain scarce, although with some positive news: while fewer than 7 percent of funded companies have achieved a successful exit over the past decade, the MENA region’s public markets were exceptionally active in the first quarter of 2025 with the region witnessing 14 IPOs (that collectively raised US$2.4 billion up 106% YoY).
A shift inward: profitability over growth at any cost
Investors now prioritize sustainable economics over pure top-line growth. In H1 2024, nearly one-third of VC rounds were flat or down. In response, founders are cutting non-essential costs, extending runways via insider and bridge rounds, and tempering growth targets. SaaS firms have benefited most, with subscription revenues enabling predictable forecasts and low marginal costs. In the Middle East, SaaS startups raised over US $300 million last year, highlighting their appeal as de-risked, margin-focused models. By emphasizing cash-flow break- even and recurring income, investors seek to shield portfolios from volatility and drive lasting value.
From handholding to takeoff: governments shaping VC landscape
As private risk appetite has recalibrated, public-sector initiatives have evolved from stopgap relief to strategic partnerships. In the Middle East, Saudi Arabia’s Unicorns Program offers mentorship, licensing and direct subsidies to help high-potential start-ups scale toward unicorn status. Meanwhile, UAE’s IGNYTE Platform allows start-ups to tap into a rich VC network and benefit from various perks and deals that could help them save over $100 million in operational costs.
Additionally in the AI domain, UAE launched the Artificial Intelligence and Advanced Technology Council as well as the AI71 initiative. Sovereign-backed vehicles such as Saudi Arabia’s US$100 billion AI fund and the AED 1 billion Dubai Future District Fund have also mobilized long-term capital.
By reducing bureaucratic friction and signaling policy continuity, these measures unlock follow-on funding and lay the groundwork for private-sector leadership.
The AI hype: here to stay
Despite broader market headwinds, AI has emerged as a clear outlier. Following a funding slowdown in 2022 and a 13 percent drop in deal volume through 2023, investment in AI infrastructure and research surged in 2024 (see Figure 4), ultimately accounting for over 70 percent of US venture-capital funding in 2025.
The picture does not radically change in the ME. Although the regional countries have attracted less investment into AI start-ups, there are some notable developments. Governments in the region are heavily investing in AI, with Saudi Arabia planning to create a $40 billion fund to invest in AI and the UAE establishing a dedicated council for AI innovation. Moreover, (1) several VC funds are actively investing in AI startups in the Middle East, supporting a diverse range of AI applications and innovations, and (2) creation of dedicated funds for AI startups, such as the $100 million AI Fund backed by Google and STV (which aims to support AI-native startups in the Middle East and North Africa). Finally, Sovereign Wealth Funds are also emerging as key backers of AI startups (often in Silicon Valley, with a cross-border investment strategy helping to bring cutting-edge AI technology to the region).
VC in the Middle East: a bright future
The Middle East’s VC ecosystem is entering a transformative phase, marked by a recalibration of priorities and a shift in investment dynamics. The slowdown in 2023 and 2024, driven by global economic headwinds and rising interest rates, has forced VCs to adopt a more disciplined approach, prioritizing profitability and sustainable growth over aggressive expansion. Investors will demand clear monetization models and focus on recurring revenue.
Saudi Arabia is expected to continue to dominate the regional VC landscape, with its Vision 2030 reforms catalyzing investments. Meanwhile, the UAE is expected to cement its position as a hub for innovation by doubling down on emerging technologies, particularly AI, through sovereign-backed funds and sandbox ecosystems such as DIFC’s AI and Web3 Campus.
Therefore, and despite the increasing economic uncertainty, it is expected that the market will continue its recovery in 2025, with early-stage investments remaining strong and AI-focused start-ups accounting for an increasing share in VC funding, driven by both public and private sector demand. Overall, the first half of 2025 has seen robust VC activity in the GCC, driven by a combination of corporate investments, government initiatives, and a diversified investment strategy.
The Middle East is no longer just following global trends—it is creating its own. Investors who understand this reality will define the region’s next generation of unicorns.
