Funding gaps, portfolio pivots, and AI’s shift in MENA venture capital

The next three years could open a major window for regional venture capital firms to deepen their footprint across MENA as international growth investors continue to pull back from the market on global macroeconomic shifts and geopolitical risks, Latifa Banasr, partner at boutique investment firm Sharakah Capital, tells EnterpriseAM.

Growth-stage blues vs. early-stage cruise: The retreat of global investors such as SoftBank and General Atlantic has left a noticeable funding gap in growth-stage capital across the region. But Banasr says early-stage funding has been only “negligibly affected” by the pullback. “We’re very lucky that in MENA specifically, early stage requires local expertise,” she says. “The next three years will be a [chance] for us — local VCs and MENA-based VCs — to grab as many [prospects] out of the market and nurture them to attract international investors down the line.”

To position itself for that shift, Sharakah expanded the mandate of its second venture fund to cover seed through Series A investments, broadening its early-stage exposure beyond the seed-stage focus of its first, fully deployed fund.

What geopolitics hasn’t touched are long-term priorities: While tensions have reshaped investor sentiment across the region, Banasr says the Sharakah’s investment priorities have remained largely intact, with Saudi Arabia continuing to anchor its strategy. “With the war and the geopolitical changes, the only thing we’ve been cognizant of is the sustainability of operations and interruptions,” she says. “We are 100% wholeheartedly invested in the region, and that will not change.”

And the tech trio is as appealing as ever: Sharakah remains focused on core sectors like fintech, AI, and cybersecurity, which Banasr says have remained relatively insulated from physical disruptions and continue to account for 30% of global trade and investment activity.

What to watch

“The disruption that we’re most focused on is the AI disruption,” Banasr tells us. While around 60% of Sharakah Capital’s investment thesis for its second fund centers on fintech, vertical SaaS, and ecommerce startups, the firm now evaluates every SaaS company through the lens of AI disruption and defensibility. “Every time we meet a SaaS company, we ask: ‘How much of this company is improved or disrupted by AI of their core product and offering?’,” she says.

What it looks for: Sharakah Capital prioritizes startups that use machine learning and automation as core infrastructure, while steering away from “copycat” software models in favor of companies with stronger technological defensibility, particularly in regulated sectors like fintech. “AI and the AI disruption is one of the things that makes me super excited as an investor,” says Banasr.

Beyond VC, Sharakah Capital expanded its strategy last year by launching a sell-side advisory arm focused on facilitating M&A for SMEs in Saudi Arabia. Banasr says the move was designed to address fundraising bottlenecks facing startups that are often unable to secure backing due to portfolio conflicts among regional VCs. “A lot of good startups are faced with the idea that ‘I can’t invest in you just because I invested in a competitor,’” she says. The firm has already advised on agreements including Ibn Dawood Holding’s acquisition of Faza and a transaction involving Al Khozama.