As regional tensions grow, the venture capital ecosystem, often viewed as one of the more resilient parts of the regional economy, faces not only the question of whether investment activity will be affected but also how investor behavior might shift.

Uncertain times usually affect how much risk investors are willing to take and slow decision-making. This can reduce fundraising momentum and change the pace of deals in the startup world.

According to a report by Magnitt, the Middle East and North Africa region—particularly the UAE, Saudi Arabia, and Qatar—has built one of the fastest-growing venture ecosystems globally. In 2025 alone, MENA startups raised a record $3.8 billion across nearly 688 deals.

International investors have been key to the growth of the MENA venture ecosystem. Magnitt data shows that about half of the investors and capital in MENA startups come from outside the region.

INVESTOR IMPACT

However, the report notes that periods of geopolitical uncertainty often introduce a familiar risk. “Investors in negotiations of terms pull out, companies looking to fundraise stall their momentum, and acquirers of companies look for a ‘geopolitical discount’ from the current situation.” 

Although geopolitical tensions rarely trigger an immediate pullback of venture capital, Farah El Nahlawi, Research Department Manager at Magnitt, says they can slow decision-making and lengthen funding timelines, especially for larger follow-on rounds.

“Venture deals typically take six to nine months from initial discussions to closing, meaning funding announced in the near term often reflects conversations that began months earlier. As a result, the full impact of geopolitical uncertainty may not appear in the data until later in the year.”

Three areas most likely to be affected if uncertainty persists: international investor participation, late-stage funding availability, and exit activity. 

Dina Adel, Investment Relations Manager at Egytrans, says that during periods of regional instability, investors rarely exit venture markets entirely but tend to be more selective and extend investment timelines.

“Follow-on funding rounds are especially sensitive to macro uncertainty. Venture capital firms tend to prioritize supporting existing portfolio companies while slowing new deployments until visibility improves,” she explains. “As a result, startups may experience longer fundraising cycles, stricter due diligence processes, and more emphasis on financial discipline and unit economics.”

Adel points out that currency issues matter as well. Many startups in emerging markets earn money in local currency but raise funds in US dollars. When geopolitical tensions rise, the risk of a currency losing value increases, potentially affecting valuations. So, investors prefer startups with diverse revenue streams, international customers, or business models that generate hard currency.

Aly El Shalakany, Managing Partner at Acasia Ventures, says venture investors in the region broadly fall into two groups: regional and global investors. Global investors, who account for around 40–50% of VC investment in the GCC, are often more cautious about deploying capital in the short- to medium-term.

“Their appetite to continue investing will depend on how long the conflict continues and their view on the level of resilience of the tech and wider economies in the region after we get to a new normal.”

Regional investors, by contrast, tend to take a longer-term and more patient approach.

“While most regional investors at the moment will be in ‘wait and see’ mode, they will be quick to resume deployment as soon as the situation allows it,” he explains. “Interestingly, regional VCs with a wider mandate than just the GCC or those who have some flexibility to invest outside of their main geographical mandate are starting to look back again at markets such as Egypt, Morocco and other emerging and frontier markets for potential deal flow, at least in the short-to-medium term.”

SAFE HAVENS

El Nahlawi says that while it is too early to observe a significant shift in investor capital between markets, historically, investors have focused on companies with strong fundamentals and scalable business models, particularly those capable of operating across multiple markets.

She adds that demand-driven sectors such as e-commerce, logistics, and digital services tend to remain active during periods of uncertainty because they address essential market needs. 

Adel notes that during periods of geopolitical uncertainty, capital typically shifts toward industries that strengthen economic resilience, including fintech infrastructure, logistics, cybersecurity, AI, and supply chain technologies. Startups in these sectors often retain stronger investor interest even in volatile periods.

“Founder profiles and geographic diversification also influence investor confidence. Startups with multinational founding teams or operations across multiple markets are often perceived as more resilient, as they can access broader capital networks and adapt more easily to regional disruptions,” she adds.

“From a regional perspective, geopolitical fragmentation is not only creating risks but also reshaping capital flows. Investors are increasingly looking for markets that combine scale, talent availability, and relative economic stability.”

In that context, Adel says Egypt is gradually positioning itself as an attractive venture market, offering a large domestic economy and a growing pipeline of scalable startups capable of serving both regional and African markets. 

GROWTH STRATEGIES

While it is still too early to assess how founders are responding to the current geopolitical environment, historical experiences during periods of uncertainty, such as the COVID-19 pandemic, provide some useful reference points.

“Many startups shifted toward greater capital efficiency, focusing on extending runway and prioritizing core revenue-generating activities while delaying non-essential expansion,” El Nahlawi says. “Expansion strategies also tended to become more measured, with companies focusing on core markets and sustainable growth rather than rapid geographic expansion.”

She also pointed out that hiring activity became more focused, prioritizing key operational roles rather than broad headcount expansion.

Geopolitical volatility “requires founders to move away from aggressive ‘growth-at-all-costs’ strategies and toward more resilient operating models focused on sustainability and capital efficiency,” says Adel.

She notes that startups often adjust by prioritizing strong unit economics and predictable revenue, taking a disciplined approach to geographic expansion that focuses on markets with regulatory clarity, stable currencies, and robust digital infrastructure.

Industry positioning also influences resilience, with sectors such as digital payments, logistics, enterprise software, and infrastructure technologies maintaining demand even amid geopolitical uncertainty.

“Founders who build internationally connected companies, whether through multinational teams, distributed operations, or cross-border partnerships, tend to navigate geopolitical instability more effectively,” she adds. “Access to diverse talent pools and global investor networks can significantly strengthen a startup’s long-term resilience.”

“Unless a startup is clearly benefiting—or at least not being negatively affected—by the current situation, founders should adopt a similar approach to the early months of COVID, when visibility was very limited: preserve cash, extend runway and stay close to your people, clients and investors,” says Aly El Shalakany.

He adds that founders planning to raise capital in the next three to six months should consider returning to existing investors to secure a bridge round at a fair valuation, ensuring the business remains well-capitalized to navigate current uncertainty.

SUSTAINING MOMENTUM

Several structural factors have helped sustain the momentum of the MENA venture ecosystem, even during periods of global volatility. 

Government-backed initiatives have been important, with many countries launching fund-of-funds programs, adopting startup-friendly rules, and implementing policies to attract entrepreneurs and venture investors.

At the same time, El Nahlawi says, the region has built a stronger local investor base, including sovereign wealth funds, family offices, and corporate venture investors. This growing pool of regional capital helps support early-stage investments even when international investors are more cautious.

“The venture capital landscape itself has also matured considerably. A growing number of regional funds, family offices, and institutional investors are actively deploying capital into startups. This expanding local capital base provides stability even during periods when global venture investors temporarily reduce exposure to emerging markets due to geopolitical uncertainty,” Adel adds.

El Shalakany says the MENA startup ecosystem grew notably in 2025, especially across the Gulf, with a gradual rise in exits and liquidity. He warns that current geopolitical tensions may slow momentum in the short term: “It would be naive to think that the current situation will not impact this momentum in the short term.”

Still, he sees uncertainty as an opportunity for reflection and new ventures. “While no one wishes for a crisis, they often result in periods of contemplation and introspection that lead to better long-term outcomes,” he says.

He adds that global shifts may drive investment into tech sectors that strengthen capabilities. “While we have traditionally focused on fintech and software, the situation demonstrates a clear need for deeptech investments that strengthen national security.”

“Whatever the future brings, we will come out of this stronger,” he concludes. “I am sure of it.”