Borrowing to bridge Saudi Arabia’s venture funding gap

Saudi Arabia’s startups are leaning on venture debt to ride out a war that has made equity money scarcer. Equity investors have become pickier and founders are wary of giving up ownership, but the upshot is a change in how debt gets used, Fariha Ansari, a partner at India’s Stride Ventures, told Bloomberg. “We are seeing companies raise debt alongside their next equity round instead of holding it in reserve as a fallback,” she said.

Close to a dozen venture firms described the same pattern to Bloomberg, tracing it to cautious investors, a narrower appetite for deals, and the unknowns of a US-Iran war now in its ninth month.

That scramble has a clear cause: equity has slowed down. Saudi venture funding over the first nine months of the year came to USD 1 bn, down nearly a third from the same stretch in 2025, which had been a record. The slide looks sharper set beside the UAE, the kingdom’s long-standing rival for the region’s venture money, where funding climbed close to 20% to top USD 1.6 bn.

Who is writing the cheques has changed as well. Foreign money has pulled back to its lowest regional level in three years, and domestic investors have moved to fill the space. MENA-based backers accounted for 58% of capital put to work over 9M, their biggest share in three years, against 50% a year earlier, with foreign investors down to 42%.

The money that is still flowing favors established companies, which leaves early-stage founders short of equity, said Hasan Haider, founder and managing partner of Plus VC. Cautious investors are also taking longer to close their own funds, Haider added, and that leaves less to spend on new prospects and stalling startup rounds.

The usual way out for equity backers is blocked too. No company has won approval to float on the main market since April, even with candidates waiting, and the Capital Market Authority is pressing ahead with a rewrite of the listing rules that bankers have cautioned may raise the bar for going public. With fresh equity thin and the IPO door shut, debt becomes the obvious fallback.

Enter debt: Loans let companies keep growing without opening a fresh equity round that might price them below their last valuation, said Sharaf Sharaf, head of the Ajeej Capital-managed Amplify Growth Fund. Smaller firms are tapping it too. SMEs that struggle to secure traditional bank loans in the Kingdom are turning to alternative lenders, with debt-crowdfunding platform Raqamyah arranging as much as USD 107 mn this year, double its 2025 volume, and Erad fielding more than USD 1 bn in financing requests since launching 18 months ago.

OUR TAKE- Debt is bridging the gap that stalled equity and frozen IPOs have opened, which keeps companies funded through a thin patch. The exposure comes later. A loan taken now buys time on a down round while valuations sit low, but if the equity market stays frozen and exits don’t reopen, firms that borrowed against inflated marks may find the repayment harder than the raise. BRKZ, the Aramco-backed construction-tech firm that just lined up financing with Stride, takes a calmer view, saying the downturn hasn’t altered its playbook and that it treats debt and equity as complements.

What’s next: Over the next couple of years, Stride Ventures aims to deploy more than double the USD 90 mn it committed so far in Saudi transactions, with plans to close at least two more transactions before year-end.