US pullback pushes Mena startup deals to five-year low

• War tensions weigh on risk appetite
• Q1 transactions sink 41% year on year
• International participation weakens

US investment into Middle Eastern and North African startups fell sharply in the first quarter, as geopolitical tensions linked to the Iran conflict weighed on international appetite for risk.

Deal activity across the region hit a five-year low as transactions sank 41 percent year on year to 115, from 194 in January-March 2025, according to data from research firm Magnitt.

International participation also weakened. Foreign investors accounted for 26 percent of capital deployed, down from 41 percent in the same period last year and 40 percent in the previous quarter.

The number of international investors nearly halved to 55, compared with 111 in Q1 2025 and 81 in Q4, in what the report described as “more selective” cross-border capital deployment.

US-based investors led the pullback. Their share of funding dropped from 22 percent to just 5 percent, highlighting a sharp retrenchment as geopolitical risks began to feed into investment decisions.

“As geopolitical pressure filters further into diligence and investment committee cycles, cross-border capital flows will be the key leading indicator to watch through Q2 to Q4,” the report said.

Further reading:

• Mena startup investors urged to hold nerve through Iran conflict
• Flat6Labs adopts new name as it sets up VC-only division
• Fintech dominance of Middle East VC funds likely to persist

Lucy Chow, a partner in venture capital firm Pact VC, told AGBI previously – after the Iran war had started – that it was the perfect time to instil an “Invest in Mena” programme for companies that are embedded in the region’s networks and funded by Mena angel investors, VCs, family offices and sovereign wealth funds.

“Now, more than ever, entrepreneurs and startups need funding from those who know the region and are from the region,” she said.

According to Magnitt, UAE startups raised $419 million in Q1 2026, representing 53 percent of Mena funding, driven by Property Finder’s $170 million deal in January.