Saudi startups face VC funding drop amid US-Israel war on Iran

Saudi Arabia’s venture capital market is experiencing disruptions from the US-Israel war on Iran that began at the end of February 2026, with researchers predicting the biggest funding declines will become visible in the second half of the year. According to Tracxn, a market data platform, $108 million was raised across 17 equity funding deals in Q1 2026, representing a 63 percent drop compared to Q1 2025.

Delayed Impact Expected in Q3 and Q4

Farah El Nahlawi, research manager at Dubai-based data company Magnitt, said the full impact of current disruptions will emerge later in the year. “What’s happening currently will start to be reflected in Q3 and Q4,” she said, “because it’s the negotiations and the conversations that would be happening at this point that are being delayed.”

Disruptions to air travel, cancellation of networking events, and global concerns about higher inflation and interest rates are likely to result in a drop in financing deals made with Saudi startups, according to El Nahlawi.

Recent Funding Announcements

Despite the funding decline, several VC deals have been announced since the war started. These include a $15 million Series A round for Saudi tech company Signet, a $7 million Series A funding for e-commerce platform Aya, and a $7.5 million seed round for fintech company Muhlah Zamaniyah for Finance.

El Nahlawi noted that deals already in the pipeline are the least likely to be impacted by the war. The biggest drop will come from deals that would have otherwise been negotiated now but will be delayed due to disruptions to business activity.

Event Cancellations and Conference Postponements

More than 100 events have been cancelled or postponed across the Gulf Cooperation Council region over the past two months. Saudi Arabia’s largest technology conference, Leap, was postponed from April until the end of August. According to Tahaluf, the events company that organises Leap, last year’s event saw $15 billion of investments agreed.

Global Interest Rates Affecting Investment Decisions

Higher global interest rates are also likely to dissuade investors from signing VC deals in the Middle East. “When interest rates are high, those who would otherwise invest in VC spaces will tend to go for a safer haven investment rather than a seven to 10 year investment in venture capital,” El Nahlawi said.

The US Federal Reserve has maintained interest rates at between 3.5 percent and 3.75 percent, well above its 2 percent target.

According to Magnitt, foreign investors made up around 30 percent of VC funding in Saudi Arabia last year, disproportionately weighted towards larger Series A and B investment rounds. Investments of this type are the most likely to decline due to conflict, giving increased importance to local VC investors.

Regional Leadership and Market Performance

Saudi Arabia has driven regional venture capital deals in recent years, accounting for around three quarters of VC investments made across the Gulf in 2025.

While Saudi markets have not suffered as much from the recent conflict as neighbouring ones, there has been a notable pause in new share offerings. The Dubai Financial Exchange and the Abu Dhabi Commercial Exchange have fallen by 10 percent and 5 percent respectively since the start of February. Meanwhile, the All Shares Index, which tracks the main market of the Saudi Exchange, has risen by almost 1 percent.

So far, there has been just one initial public offering on the Saudi Exchange in 2026, with plans underway for a second. “IPOs now are the worst decisions to take,” said El Nahlawi, “especially with the volatility we’re seeing across the public markets.”