A strong 1Q for UAE startups, but regional war threatens momentum come 2H - UAE

Startups in the UAE were the most well‑funded in 1Q 2026, raising USD 419 million in the quarter — a 47% year‑on‑year increase — driven largely by Property Finder’s bumper USD 170 million round, Magnitt’s latest report shows. But the headline figure masks softer underlying activity: transaction volume in the UAE fell 45% y‑o‑y to just 37 deals, non‑mega transactions declined to USD 249 million (down 13% y‑o‑y), and seasonality compounded by Ramadan, Eid and the regional war have clouded the outlook for the second half of the year.

“The [investment] that's being announced today is [one] that was already discussed earlier,” Magnitt Research Director Farah El Nahlawi told EnterpriseAM. “The expected [impact of the war] is going to start reflecting in the region in 3Q numbers.”

Context and detail

Magnitt’s Q1 snapshot underlines how a small number of mega rounds are reshaping headline metrics. The UAE’s USD 419 million was boosted by Property Finder’s USD 170 million investment backed by Mubadala, while other large agreements included USD 50 million rounds for Egypt’s Breadfast and the UAE’s Kitopi. At the same time, the region’s start‑up scene saw overall funding of USD 799 million in 1Q — flat year‑on‑year but up 31% quarter‑on‑quarter — even as the number of closed transactions hit a five‑year low at 115, down 41% y‑o‑y.

Magnitt points to several structural shifts. International investor participation in the region fell to 26% of capital deployed in Q1, down from 49% in 2025. El Nahlawi divides foreign investors into three groups: “the entrenched investors” with local offices that remain steady; “the fundraisers,” global firms using the region as a deployment market for wider funds; and the high‑risk “diversifiers” — predominantly US‑based firms with no regional presence. “Those are the ones that are going to pull back the hardest,” she said, noting that diversifiers’ share of capital collapsed from 22% to 5% in the quarter.

• The UAE accounted for 53% of total regional funding in Q1, with 70% of that capital originating from international investors.
• Some rounds were completed despite geopolitical volatility: Carnistore secured AED 45 million from Emirates Growth Fund, a deal co‑founder and co‑CEO Fikry Boutros said had been months in the works and was near close when EGF pushed to finalise it.
• Sector dynamics shifted: fintech remained the largest sector by value at USD 246 million (31% of funding) but saw a 48% y‑o‑y drop; AI’s share of deal value and deal count materially declined, with transaction share falling from 36% to 12%.
• Average agreement size reached an all‑time high of USD 8.1 million in 1Q 2026, reflecting concentration into larger rounds while pre‑seed and seed activity softened.

Outlook

Magnitt’s view is that 1Q numbers largely mirror 2025 sentiment — VC deals typically take six to nine months to move from handshake to close — so the full impact of recent geopolitical shocks is likely to appear in later quarters. El Nahlawi warns investors will gravitate towards “safer wagers,” favouring startups with the strongest fundamentals; she expects the composition of the investor base and deal sizes to remain key indicators to watch through 3Q and 4Q as the region responds to evolving risk perceptions.