The performance of Saudi Arabia's venture capital (VC) market isn't just about the total funding anymore. It's also about how well it keeps things moving, even with fewer huge funding rounds. In the first half of 2026, investors leaned towards funding startups with smaller deals, focusing more on early-stage companies. This shows a shift in how capital is being injected, but it hasn't made the market any less attractive.
A new report on Saudi VC investment for H1 2026, released by Magnitt, revealed that startups raised $219 million across 72 investment deals during the first six months of the year. This marks a 74% drop in investment value year-on-year, and the number of deals fell by 41% compared to the same period in 2025.
This dip is mainly because there weren't any "mega-rounds" – those big deals worth over $100 million. Last year's first half saw several massive deals that pushed total funding to exceptional levels. In contrast, all the rounds completed this period were small to medium-sized.
Saudi Arabia Holds Its Regional Spot
Despite the lower funding amounts, Saudi Arabia held its ground as the second-largest VC market in the Middle East and North Africa (MENA) region by investment value, right after the UAE. This is thanks to continued startup activity and a variety of sectors that attract capital.
This performance follows an incredible year for the Saudi market in 2025, when startups successfully raised $1.72 billion across 242 investment deals. That was the highest annual level ever recorded for the Kingdom's VC sector, making the comparison with this year's performance quite stark.
The report's data also showed a clear slowdown in investment activity during the second quarter of 2026. Funding dropped to $67 million across 20 deals, down from $152 million across 52 deals in the first quarter – a 56% quarterly decrease.
The second quarter also saw the fewest quarterly deals since Q2 2024. Interestingly, February alone accounted for about 45% of the total funding recorded in the first half, and the largest single deal during this period was valued at $26 million.
FinTech Continues to Lead Investment
The Financial Technology (FinTech) sector continued to be the biggest magnet for capital. It secured $147 million in funding, making up 67% of the total funding in the Saudi market, even though its investment value dropped by 41% compared to the same period last year.
Enterprise software came in second, attracting $27 million in funding and showing a strong 194% year-on-year growth. E-commerce and Retail ranked third with $7 million, but saw a significant 98% decrease year-on-year.
The Agriculture and Real Estate sectors each received $5 million in funding. Agriculture investments grew by 96%, while Real Estate funding decreased by 58%.
On the flip side, the Gaming sector topped the list for the most active sectors by deal count. This was boosted by investment accelerator programs and initiatives aimed at supporting startups in this area.
The report also highlighted a shift in the investor landscape during the first half of the year. International investors participated less and focused more on pre-seed and seed-stage investments. Meanwhile, local investors increased their contribution to startup funding, which helped keep the market active despite the smaller deal sizes.
The data also revealed that investment funds still have unutilized capital. This suggests that there's plenty of capital ready to enter the market once the funding environment improves and larger deals return, which could help boost activity in the coming periods.
Historical data shows that Saudi Arabia's VC market has gone through several phases in recent years. Funding reached $1.02 billion in 2022, then rose to $1.39 billion in 2023, before dipping to $696 million in 2024, and then jumping to a record $1.72 billion in 2025.
The performance in the first half of 2026 reflects a change in the market's nature rather than a decline in its appeal. Small and medium-sized investment rounds have become the main drivers of activity, with a continued focus on funding early-stage startups. This is building a foundation for long-term growth, as we await the return of larger deals to boost overall funding levels.
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