Saudi’s venture pause won’t last, and the money is ready to redeploy

The capital that went quiet in Saudi in 1H is coiled to come back. That’s the read from a senior venture investor who spoke to us on condition of anonymity, pushing back on the common view that this year’s agreements were the tail of a pre-committed pipeline and that 3Q brings the true reckoning of the war’s impact once it empties. As he sees it, funds paused to reassess risk after the war broke out in April, sitting on their capital rather than deploying it, with many waiting on a reopening events calendar to start again.

DATAPOINT- The Kingdom’s startups raised USD 219 mn across 72 rounds in 1H, with funding down 74% y-o-y against a 41% drop in round count, according to Magnitt data.

The pause was a fiduciary call. When the war broke out, funds eased off deployment to reassess valuations, manage risk, and open up better entry points and negotiating room, our source tells us. Growth-stage startups ran the same math, mapping runway and hiring freezes against client payments that might come late. Earlier-stage founders, newer and thinner on staff, were slower to react and watched launch timelines slip from a month or two to four and six.

What froze dealflow as much as anything was the calendar. The events that put investors, founders, and traction in the same room were postponed through the first half. With LEAP opening today and Money20/20 to follow between 14-16 September, our source expects a backlog of announcements and initiatives that have been waiting for their PR moment — and sentiment to return alongside them. Once activity becomes visible again, confidence can start to rebuild, and money moves once money is seen to move. They expect funding to remain below previous years, but upcoming events could help bring some of the lost momentum back.

The dry powder backs the case. MENA funds are sitting on an estimated USD 1.45 bn in committed-but-undeployed capital, 88% of everything raised since 2024, with Saudi drawing the largest deployed share. The capital is still there — it’s waiting on conditions to settle before it deploys. The two or three funds still fundraising are the exception, with LPs who would rather wait out the instability before answering a capital call.

Don’t expect it back evenly. Growth-stage startups get the attention first. Early-stage rounds can still close, but only at valuations founders reset down from their pre-war marks.

The other filter that cuts across every stage is AI defensibility. Investors want to know whether AI can cheaply replicate what a startup is building, and hesitation is highest around pure AI agents and standalone enterprise-AI plays — where too many firms are selling the same concept with too little enterprise adoption to identify clear market leaders. Startups embedding AI into a concrete commercial product are raising more easily.

The laggards are the foreigners. Local investors can walk into a company and read the numbers, while international VCs, working off media reports without people on the ground, are slowing negotiations until the picture steadies. That tracks with the 1H data — Saudi-based investors supplied 74% of the Kingdom’s funding, up from 54% a year earlier, as the international share fell away.

Venture moves in cycles, and these lean stretches tend to yield the best returns, because startups turn strictly capital-efficient and make every SAR count. It filters too: founders who left corporate jobs in the boom years and lack the stamina for bridge rounds and lean cycles are drifting back to salaried roles, leaving the ones with the appetite to stay.

On the exits, the backlog is reshaping dealmaking. M&A is picking up as startups that struggled through the past six to nine months hold realistic conversations about merging — talks that inflated valuations used to block. Higher-value strategic acquisitions and IPOs have stalled with the Saudi listing market, pushing even conventional non-tech names to hold off.

What to watch: Keep an eye on Leap and Money 20/20 for the first wave of announcements, the 3Q data for whether early-stage flow revives, and the IPO pipeline most of all. A single listing that clears by year-end would, they argue, do more to restart the cycle than a top-tier international name closing one local agreement, or any amount of dry powder sitting still.