MENA+ startups will feel the war’s squeeze starting in 3Q 2026, Magnitt says

Startups in our region raised USD 799 mn in 1Q, remaining flat y-o-y but growing 31% q-o-q, according to a Magnitt report seen by EnterpriseAM. Deal volume plummeted 20% q-o-q and some 41% y-o-y to reach a five-year low at 115 closed transactions. The drop in volumes was effectively offset by a jump in the average size of transactions.

While the data may look like an indication of startups’ resilience, it’s more of a rearview mirror than a window. These transactions typically take six to nine months to move from handshake to a close, meaning 1Q numbers are largely an indicator of 2025 sentiment. “The deal that’s being announced today is a deal that was already discussed earlier,” Magnitt Research Director Farah El Nahlawi tells EnterpriseAM. “The expected [impact of the war] is going to start reflecting in the region in 3Q numbers,” she added.

AND- Some startups opted against disclosing funding, possibly to avoid publicizing flat rounds or lower valuations or simply because the geopolitical environment doesn’t allow it. “This does not mean the deals were not there, but they were not announced because the situation did not support them,” El Nahlawi explains.

The investor taxonomy

The composition of the investor base showed a marked shift in 1Q. International participation fell to 26% of capital deployed in the first quarter of the year, down from 49% in 2025, although it’s not a uniform withdrawal. El Nahlawi categorizes the foreign base into three risk profiles:

• The entrenched investors: Firms with physical offices and permanent teams in Dubai, Riyadh, or Cairo. They’re “part of the investment landscape” and remain steady.

• The fundraisers: Global firms tapping local capital for their own funds. Regional deployment is often a secondary, strategic neighborly gesture, and is also set to remain steady.
• The diversifiers: This is the high-risk group — purely international firms (largely US-based) with no regional boots on the ground. “Those are the ones that are going to pull back the hardest,” El Nahlawi says. Their share of capital cratered from 22% to just 5% this quarter.

The UAE is the most exposed to this shift in foreign investor sentiment. The country took a 53% share of total funding in the region, but 70% of that capital came from international sources.

It’s a little different over in Saudi: KSA was the most transacted market (41% share) with 70% of its funding sourced — largely from sovereign wealth funds — making it much more insulated.

Does this mean we will see more local investors filling that gap down the line? El Nahlawi doesn’t think that there is going to be a big gap in the medium-long term to begin with, but the 3Q and 4Q investor mix is worth watching closely once the war’s real impact lands in the data.

By the industry

Fintech still reigns supreme, accounting for 31% of all funding (USD 246 mn) despite seeing a 48% y-o-y drop. But its absolute dominance is “relatively seeing a decline,” El Nahlawi says. “We are now seeing a reshuffling at the top funded,” as capital seeks out more tangible, operational business models. Real estate and F&B have muscled into the top ten deals list, with three-digit growth rates, albeit largely off small bases and on the back of individual mega rounds: Property Finder’s USD 170 mn round from Mubadala in January and USD 50 mn rounds from Egypt’s Breadfast and the UAE’s Kitopi.

Investment in AI-led themes plunged by nearly half y-o-y to USD 57 mn, while its share of the total number of transactions fell to 12% from 36% across 17 deployments. The drop was seen across the top three markets of 1Q: Egypt, Saudi, and the UAE, El Nahlawi says. Even as US investors pulled back overall, they led AI deployments alongside UAE investors.

Funding stage composition changed, too. Unlike 2025, where deployments were balanced between early-stage and more mature companies, the concentration of funding during 1Q 2026 was in early-stage players, with the majority of transactions falling in the USD 1-5 mn range — almost 3 mn less than 1Q’s average.

How can we read this data? Quarterly data on their own are not enough to confidently pinpoint a trend, let alone 1Q of 2026. But a likely explanation for both fintech and AI data is that we are seeing deployment delays following the strong base that both sectors showed in 2025, El Nahlawi tells us.

Morocco scores another win

Morocco was a rare bright spot among periphery markets, showing growth in both deal count and funding. The country’s funding size rose by 1092% y-o-y to record USD 42 mn, largely driven by a single mega USD 15 mn round for a real estate outfit, El Nahlawi tells us.

In these smaller ecosystems, a single deal can distort the entire data set, though “having an IPO or an M&A at least once a year is a great achievement” for a market of that scale, El Nahlawi explains.

The outlook

If you want to know what happens next, look back to 2020: El Nahlawi draws a direct parallel between the current period and the onset of the pandemic. Back then, it took exactly two quarters for the shock to manifest in the data. “We saw it in COVID... the real activity dropped in 3Q,” she adds.

Expect investors to go big on their safest bets — and that could be good news for startups with the strongest fundamentals. Those who make the cut in 2Q and 3Q will likely outraise their targets as capital concentrates, El Nahlawi tells us. With average deal sizes already trending up over the last few quarters before hitting an all-time high of USD 8.1 mn in 1Q 2026, expect bigger averages ahead, alongside a reduction in overall activity and value.