Gulf investors are slowing down and trading hype for fundamentals, but Indian founders still want Dubai

The US-Iran war has not driven Indian startups away from Dubai, but it may have changed the way investors deploy their capital. Rather than retreating altogether, venture capital firms are slowing investment, holding more liquidity, and becoming increasingly selective, with checks moving away from hype-driven sectors like AI toward businesses with stronger fundamentals.

“Recent events have had an impact, but that is very temporary. Dubai is increasingly the headquarters of convenience, while India remains the engine,” Sidharth Sogani, founder and chief executive of Manama-based BlueAster Capital, tells EnterpriseAM. BlueAster Capital invests in startups and emerging tech across the Gulf.

Disciplined investing

The Iran conflict has altered investor behavior rather than their appetite, Sogani says. “We don’t want to stay fully invested in an environment that’s difficult to predict. If we see [a window], we enter, capture it, and exit, rather than staying invested for long,” he explains.

The trend is reflected more broadly in India’s startup ecosystem, with industry-wide funding falling 43% y-o-y to USD 7.8 bn between 1 March and 15 June this year from USD 13.7 bn. Late-stage funding was hit the hardest, dropping 61% to USD 1.5 bn from USD 3.8 bn as investors delayed deployments and became more selective.

Where is the money going?

Rather than chasing high-profile startups, Sogani believes investors will back businesses that solve tangible commercial problems. “Post war, the Gulf will increasingly look beyond startups that generate publicity and focus more on businesses with stronger fundamentals.”

Manufacturing, industrial technology, and process-led businesses may attract greater investor interest, while AI-first startups could face tighter scrutiny, he says. “The concentration of capital in the AI bubble in the US is draining liquidity from other sectors and increasing risks of a sharp correction,” Sogani adds.

Crypto infrastructure and advanced manufacturing are set to attract more capital, supported by sovereign investment programs and industrial policy. “The UAE’s regulatory clarity offers a level of institutional legitimacy that founders in emerging sectors desperately need. Add to that zero capital gains tax, ease of banking and proximity to Gulf institutional capital, and the economics become hard to ignore,” Sogani says.

A slew of incentives

The Central Bank of the UAE’s AED 1 tn (USD 270 bn) resilience package, announced in March, to bolster liquidity and capital buffers, has also sought confidence among the expatriate community. Authorities rolled out another AED 1.5 bn worth of incentives to reduce business costs through fee waivers, customs relief, and lower government contract guarantees.

Another reason Gulf investors are unlikely to retreat completely is because Indian companies make up more than 30% of Dubai’s startup community. Around 3.9k new Indian firms joined the Dubai Chamber of Commerce in 1Q 2026, an 11% y-o-y uptick.

Founders are still eyeing Dubai

For many startups, the UAE is increasingly becoming the commercial headquarters, while engineering and product development remain in India. Bengaluru-based fintech startup OnFinance AI is among those pressing ahead with its expansion, planning its third global office in Dubai to serve customers across the Middle East and North Africa, Anuj Srivastava, CEO, tells EnterpriseAM.

For Mehul Mohan, tech creator and founder, Fermion, Dubai is very easily available. “I can get my residency visa, apply for a Golden Visa. It is a three-hour flight from India,” he tells us, explaining why he exited his VC-backed edtech platform Fermion and chose Dubai to relocate over proven tech hubs like San Francisco and Singapore.

“I think now will be a good time for founders to move to the UAE because the UAE wants that confidence back,” argues Sogani.

For Indian founders, the message is clear: Dubai remains one of the world’s most attractive gateways to global markets. But Gulf capital is no longer chasing growth at any cost.