Startup funding in the Middle East and North Africa (MENA) fell to $941 million in the first quarter of 2026, marking a 21.5% quarter-on-quarter decline and a 37% drop year-on-year, as escalating geopolitical tensions weighed on investor activity across the region.

The year opened on a relatively strong note, with nearly half a billion dollars deployed across 59 deals in January. By mid-February, however, escalating tensions between the US, Israel, and Iran began to weigh on investor sentiment. As the conflict intensified, investment activity slowed, with February closing at $326.6 million.

Beyond sentiment, the war had tangible economic consequences. Disruptions to seaborne logistics, particularly following Iran’s blockade of the Strait of Hormuz, one of the world’s most critical oil transit chokepoints, heightened global risk exposure and reinforced investor caution across the region.

With uncertainty persisting and only a fragile truce in place, March recorded one of the weakest funding months in recent years. Just 17 startups raised less than $50 million in total, reflecting a near standstill in deal activity.

A brief window of optimism emerged as global attention turned to anticipated negotiations in Islamabad. However, the collapse of talks by the end of the week quickly reversed sentiment, reinforcing expectations of a challenging second quarter and a longer recovery cycle for both startups and investors.

UAE leads, but regional momentum softens

Startups in the UAE led regional funding in Q1, raising $625.8 million across 46 deals, significantly ahead of Saudi Arabia, where 57 startups secured $156.7 million. Egypt ranked third, attracting $86 million across 12 transactions.

Elsewhere, Morocco showed relative resilience, raising $22.6 million across six deals, largely driven by Yaakey’s $15 million Series A in January. Bahrain followed with $22 million raised across two transactions.

Fintech retains its lead in investor interest

Fintech once again led sectoral funding, accounting for 46% of total investment, with 25 startups raising the largest share of capital. Proptech followed with $228.6 million across 12 deals, while foodtech startups secured $60 million through three transactions.

Despite ongoing discussions around alternative financing, debt contributed just 11% of total funding during the quarter.

Capital remained heavily skewed towards early-stage startups in terms of deal count, with 110 startups raising a combined $233 million. In contrast, only seven late-stage rounds were recorded, accounting for $113 million, highlighting the continued slowdown in growth-stage capital deployment.

B2C absorbs capital, B2B drives volume

While B2B startups dominated deal activity, accounting for 74 transactions worth $199 million, B2C startups attracted the majority of capital. A total of $564.6 million was deployed across 43 B2C deals, reflecting continued investor appetite for consumer-facing platforms with scalable revenue potential.

The remaining funding went to startups operating hybrid models.

A persistent gender gap

Funding disparities remain stark. Only five women-led startups raised capital during the quarter, securing a combined $500,000. In contrast, male-founded startups accounted for approximately 98% of total funding, raising $924 million.

A fragile outlook for Q2

The outlook for the second quarter remains uncertain. Prolonged geopolitical instability is expected to dampen investor confidence, particularly across sectors closely tied to regional and global trade flows, including logistics, travel, and e-commerce.

Inflationary pressures are likely to intensify in more fragile economies such as Egypt, while oil prices are expected to remain elevated. At the same time, the GCC may see a moderation in the investment momentum it has sustained in recent years. Investors are likely to adopt a more cautious stance, delaying capital deployment until there is greater clarity around the evolving geopolitical landscape.