A Tipping Point: MAGNiTT’s Philip Bahoshy On The MENA’s US$1.2 Billion Venture Capital Record In Q3 2025

Startups in the Middle East bagged a record US$1.2 billion in funds in the third quarter (Q3) of 2025, according to the Dubai-based data platform MAGNiTT, thereby defying the downturn across other emerging markets while also signaling a renewed appetite for growth-stage investments.  

Investment climbed by about 60 percent from the previous quarter, and it nearly quadrupled from the same period last year, driven largely by mega deals above $100 million. For the first time in several years, international investors deployed more capital than local backers—an inflection point that signals growing global confidence in the scalability and fundamentals of startups across the Gulf.  

In an interview with Inc. Arabia, Philip Bahoshy, founder and CEO of MAGNiTT, said the strength of late-stage funding reflects deepening maturity in the market. “It’s an extremely positive sign to see growth in late-stage investments," he said. "According to MAGNiTT’s Q3 2025 MENA VC Report, 91 percent of the region’s total funding this year came from Saudi Arabia and the UAE. This indicates that growth-stage activity is concentrated within the GCC, where sovereign-backed ecosystems have created real depth in the market.” 

According to Bahoshy, the funding rebound has been aided by liquidity flowing into the market, particularly from global investors. “This increase reflects a more liquid environment, supported by international investors now accounting for around 50 percent of total capital," he explained. "With global interest rates beginning to fall, capital that had been focused on the US and Europe is increasingly flowing into the MENA region.” 

But the upswing isn’t confined to mega or late-stage deals—in fact, Bahoshy stressed that the ripple effect is being felt across earlier funding rounds as well. “The VC ecosystem in the region is seeing a rebound across Series A and B rounds, which together saw a 205 percent year-on-year rise in total funding, following a relatively muted activity during the past two to three years of higher interest rates," he said. "That comeback signals renewed investor confidence in scalability and fundamentals.” 

Critically, the Middle East’s performance stands in stark contrast to other emerging markets, with Southeast Asia recording its weakest quarter in more than seven years, while Africa saw funding drop to its lowest levels since 2020.  Unpacking the factors behind the Gulf’s relative strength amid the broader slowdown, Bahoshy noted that the region’s ecosystems have remained well-capitalized, supported by sovereign initiatives and consistent government backing that continue to provide long-term stability and investor confidence.

With stronger local funding mechanisms now in place, Bahoshy said attention is shifting outward, as international investors begin viewing the region as a viable destination for capital deployment. “Global funds have increasingly looked to the region, not just to raise capital, but to invest locally," he said. "The share of international investors rose to half unique investors backing investment in the region in the first nine months of 2025. Strong geopolitical relationships with the US and Europe have created both access and obligation for general partners to commit capital here.”  

From Bahoshy's perspective, the next phase of growth will depend on sustaining international participation and sovereign commitment. “Looking forward, continued international participation and sustained sovereign support will be essential," he said. "The region still depends on large institutional players, from General Atlantic and KKR to sovereign funds, to anchor this growth. However, with oil prices down roughly 15 percent year-to-date, there’s a risk that ecosystem funding from sovereigns could tighten if fiscal pressures increase." 

Bahoshy also pointed to four key advantages driving the Middle East’s growing appeal to global investors: its position as a global crossroads, strong public–private collaboration, a young and digitally connected population, and rising participation from corporates and government institutions. “Now more than ever, the Middle East has become a magnet for the global economy, attracting investors and companies from Asia, Africa, Russia, Eastern Europe, and Western Europe,” he explained. “The region’s ability to serve as a bridge between East and West has positioned it at the crossroads of capital, trade, and innovation.” 

"A second defining advantage is the strong government–private sector collaboration," he continued. "From streamlined licensing and accelerator programs to sovereign fund-of-fund structures, these initiatives have created a fertile environment for founders to scale. Startups in the GCC increasingly use the Middle East as a springboard to regional, and in some cases global, ambitions. Third, the young, digitally native population with exceptionally high smartphone penetration offers a massive addressable market. In places like Saudi Arabia, startups can achieve scale domestically before needing to expand abroad, a rarity in emerging markets.” 

Finally, Bahoshy noted that corporate and government engagement in venture activity is steadily increasing—an evolution that signals the ecosystem’s growing maturity. He added that this deeper participation is likely to become a major catalyst in the years ahead as more strategic investors enter the market. And while exit momentum still hasn’t reached desired levels, Bahoshy noted that liquidity is slowly returning to the market through mergers and acquisitions (M&As), which he calls “one of the most positive signs we’ve seen this year.”

“Over the past nine months, M&A deals have doubled compared to the same period last year, which signals that liquidity is gradually returning to the market," Bahoshy pointed out. "That said, exits remain one of the region’s biggest challenges. The pipeline is improving, but we haven’t yet seen the kind of exit flywheel that drives sustained reinvestment. Still, this rebound in M&A is an early indicator that confidence is building again across later-stage investors and corporates.” 

Bahoshy also pointed to ongoing regulatory reforms across the GCC as being integral in reshaping investor expectations, particularly by broadening exit pathways. “On the regulatory side, both Saudi Arabia and the UAE have made significant strides," he said. "Saudi has embraced greater foreign ownership, and we’re now hearing more companies planning to list locally in both jurisdictions. While those initial public offering (IPO) ambitions haven’t yet fully reflected in the data, they’re a strong sign of intent.”

Another force contributing to the ecosystem’s resilience, Bahoshy added, is coming from state-backed capital programs in the form of fund-of-fund structures, which are quietly underwriting the foundations of venture activity. “Programs by Saudi Venture Capital Company, Jada, Dubai Future District Fund, and others in Qatar have been instrumental in seeding new funds, attracting international investors, and strengthening the overall ecosystem," he said. "So, while the Middle East has certainly felt the global slowdown, the GCC’s fiscal strength, policy alignment, and sovereign support have positioned it to outperform other emerging markets.” 

Beyond the surge in funding for startups, another noticeable trend, Bahoshy said, is increasing regional capital being deployed beyond local borders, particularly in advanced technology sectors. “We’ve seen a noticeable increase in sovereign wealth funds and limited partners (LPs) from the region investing globally, particularly in deep tech, artificial intelligence (AI), and semiconductors," he said. "This isn’t just a financial play. It’s a strategic, relationship-building exercise aimed at strengthening the region’s position as a global hub for innovation, particularly in AI.” 

Examples of these investments include the Abu Dhabi’s artificial intelligence (AI) investment platform MGX’s participation in a $6.6 billion secondary share sale in the San Francisco-headquartered OpenAI in October, which set the ChatGPT maker’s valuation at about $500 billion. And in April, M42, the Abu Dhabi-based tech-enabled global health company specializing in artificial intelligence (AI), advanced technology, and genomics, announced an investment and strategic partnership with UK-based Juvenescence, a longevity-focused biotechnology company. 

Bahoshy said this outward investment push is creating a feedback loop—strengthening ties abroad while drawing international players closer to the region. “By investing abroad, these sovereigns are gaining access to cutting-edge technology, expertise, and partnerships, which in turn help transfer intellectual capital back into MENA," he said. "It’s part of a broader effort to align the UAE and Saudi Arabia with the future of global technology value chains. At the same time, we’re seeing the reverse flow begin to happen, international companies such as Revolut, Robinhood, and major Asian e-commerce players establishing regional headquarters in the Gulf. These moves, often facilitated through government partnerships, not only validate the region’s attractiveness but also create a healthy competitive tension that pushes local startups to elevate their capabilities.” 

According to Bahoshy, this fluidity of capital and interest is steadily anchoring the region’s position within the global innovation landscape. “Ultimately, this two-way dynamic, sovereigns investing outward and global players setting up inward, is what cements the Middle East’s position as a cornerstone in the global innovation ecosystem," he said. But he also noted that to create a flywheel effect, the region must maintain investment flows into the ecosystem. “It is worth noting that the orange flag remains a liquidity issue," Bahoshy pointed out. "For the flywheel to truly restart, we need more exits and secondary transactions to recycle capital and boost investor risk appetite. That’s what will sustain the next phase of confidence and reinvestment into the MENA region.” 

In spite of that, Bahoshy remains optimistic about the broader direction of venture activity. “Based on global benchmarking, we’re now at the beginning of a recovery cycle for venture capital, not just in the MENA, but globally," he said. "Barring any major macroeconomic shock, the combination of lower interest rates and cheaper cost of capital should continue to attract both cross-asset allocators and regional VCs to redeploy into the space.”  In terms of industries drawing investor interest, Bahoshy noted that the region is seeing increasing diversification, with a focus on scalable products and services. “We’re likely to see a rotation away from e-commerce, logistics, and pure fintech, though fintech will remain a pillar," he said. "The next wave will be defined by AI, deep tech, proptech, and education, as investors look to higher-value, cross-geographical opportunities that can scale beyond the MENA."

Just as critical as funding, Bahoshy pointed to the role that cross-border partnerships and geopolitical alliances will continue to play in determining the ecosystem’s trajectory. “The GCC’s deepening global relationships with the US, Asia, and even Russia are also reshaping the investment landscape," he said. "As companies from the region increasingly expand abroad, we’ll see more cross-border capital flows and international partnerships that further strengthen the MENA’s venture ecosystem.”  

Bahoshy also highlighted the roles of both exits and macroeconomic factors in sustaining the ecosystem’s momentum. “If we see the return of successful IPOs, both globally and regionally, that will reignite investor confidence and risk appetite across the venture asset class," he said. "The orange flag is oil. A prolonged decline in oil prices could constrain sovereign deployment, which has been a major engine for the ecosystem’s momentum over the past few years.” 

Pictured in the lead image is MAGNiTT founder and CEO Philip Bahoshy. Image courtesy MAGNiTT.