Saudi venture market emerges smaller, more local in 1H 2026 - KSA

Saudi Arabia’s venture market contracted sharply in the first half of 2026, with startups raising just USD 219 million across 72 rounds — a 74% decline in capital and a 41% drop in round count year-on-year. The market also grew markedly more domestic: Saudi-based investors supplied 74% of funding in 1H, up from 54% in the same period last year, while international participation slid to 13% from 36%.

"The next three years are expected to bring more regional VC firms expanding their presence," said Latifa Banasr, partner at Sharakah Capital, highlighting the shift toward regional and domestic deployment even as global investors remain cautious.

Concentration of capital and deal sizes

The decline was concentrated at the top. No round above USD 100 million closed in the Kingdom during the half, a stark reversal after similarly sized transactions contributed USD 414 million a year earlier. Series A proved resilient: seven Series A rounds raised roughly USD 105 million, nearly matching the prior year and buoyed by several mid-sized fintech transactions. By contrast, pre-seed and seed funding fell 48%, and there were no recorded Series B or Series C+ rounds in 1H 2026.

Fintech continued to dominate value allocation, absorbing 67% of total funding despite experiencing a 41% drop in sector funding. The market was top-heavy: the 10 largest rounds accounted for about 64% of the half’s total capital, and seven of those top rounds were raised by fintech firms. Gaming led on deal count, driven by a flurry of smaller rounds rather than large cheques.

Investor activity shifts

Investor activity in Saudi Arabia and across MENA reflected a broader pivot to regional backers. Saudi investors were the largest source of venture capital across MENA in 1H 2026, representing 26% of all participating investors, per regional tallies. Riyadh-based Merak Capital emerged as the region’s most active investor, deploying USD 7.1 million across 19 transactions — up from a single investment a year earlier — as it leaned into gaming startups. Trailing Merak were the UAE’s Raseya Capital with USD 4.8 million across 17 transactions, and Plus VC with USD 2.8 million across 14.

• Total participating investors across MENA fell 26% year-on-year to 243.
• International investor participation dropped 48%, while regional investor counts declined only 2%.
• The 10 most active investors accounted for 45% of all MENA transactions in 1H 2026, up from 39% a year earlier.

Outlook

With Saudi firms supplying a larger share of capital and a handful of active investors dominating deal flow, the next several quarters may see further concentration of investments into fintech and a handful of high-activity regional VCs. The absence of late-stage Series B and C+ rounds suggests a pause in follow-on funding for growth-stage companies, potentially slowing exits or cross-border expansion unless international appetite recovers. Market participants will be watching whether the regional expansion by Saudi and other Gulf VCs that Latifa Banasr referenced translates into sustained dealmaking and broader sector diversification through the rest of 2026.