What you need to know
- Sovereign wealth funds like PIF, Mubadala and ADIA are driving VC growth in the Middle East.
- Sovereign wealth funds historically made conservative investments into government bonds and real estate but are now focused on the fintech, healthcare, AI and renewable energy sectors.
- The GCC VC market is projected to reach USD 10 billion by 2030.
- Various government initiatives such as Saudi Vision 2030 and UAE Centennial Plan 2071 are supporting the region’s aims to diversify its investments and attract international investors.
What you need to do
- Know the key sovereign wealth fund players in the GCC region.
- Understand the target sectors for VC investment.
- Stay updated on regulatory changes.
- Monitor market trends.
Introduction
Sovereign wealth funds (SWFs) are increasingly becoming pivotal players in the Middle East’s venture capital (VC) financial landscape. Middle Eastern state-owned investment funds manage close to USD 4 trillion and have increasingly turned their attention to VC as a means to diversify their portfolios and drive economic growth. Among the most prominent SWFs in the region are Saudi Arabia’s Public Investment Fund (PIF), the Qatar Investment Authority (QIA), the Mubadala Investment Company (Mubadala), the Abu Dhabi Investment Authority (ADIA), and the Kuwait Investment Authority (KIA). Historically, SWFs in the Middle East were focused on conservative investments, such as government bonds and real estate, aimed at preserving wealth and ensuring long-term financial stability. Whilst investments in these areas continue, the past few years have witnessed a strategic shift as these funds are increasingly looking at new investment areas and have begun to recognise the potential of VC to generate returns and foster economic diversification by reducing dependency on oil revenues.
Venture capital trends in the Middle East
Market research indicates that SWFs in the region are driving VC growth in sectors such as fintech, healthcare, artificial intelligence, clean technology and renewable energy, reflecting a broader VC trend to help boost the image of the Middle East as a hub for technological innovation. In the fintech sector, which accounted for 32% of total funding volume in Q1 2024, Middle Eastern investors are capitalising on the region’s increasing demand for digital financial services with key investments including Mubadala-backed fintech company Tabby, a Saudi Arabian buy-now-pay-later (BNPL) service, undertaking a USD 200 million Series D round in 2024 and currently preparing for an IPO, and Tamara, another Saudi Arabian fintech BNPL platform, securing USD 340 million in its Series C funding round in 2023 backed by Sanabil, a wholly-owned subsidiary of PIF.
Investments in e-commerce and retail enterprise software services have been driven by regional businesses’ desire to enhance operational efficiency and competitiveness through digital transformation. Transport and logistics are benefiting from investments aimed at improving supply chain management and connectivity, while the healthcare sector is experiencing a wave of innovation spurred by the need for advanced medical technologies and services.
Complementing these market trends are ambitious government initiatives such as Saudi Vision 2030 and the UAE Centennial Plan 2071. Saudi Vision 2030 aims to diversify the Kingdom’s economy by reducing its dependence on oil and developing key sectors such as technology, healthcare, and tourism, whilst the UAE Centennial Plan 2071 outlines a long-term strategy to position the UAE as a global leader in innovation and economic development. These strategies are significant as Saudi Arabia and the UAE account for over 90% of the total deal volume in the region. According to projections published by PWC earlier this year, if current growth trends continue, the GCC VC market could reach USD 10 billion by 2030.
Sovereign wealth fund VC investment activity in the Middle East
At the end of 2022, SWFs globally managed c. USD 11 trillion, and today Abu Dhabi’s SWFs, including ADIA and Mubadala, are responsible for managing the most SWF capital globally at c. USD 1.7 trillion. ADIA recently invested USD 150 million into Greenko, an Indian renewable energy company, while some of Mubadala’s key investments have been into American biotechnology companies (Outspace Bio, Metsera and Capstan Therapeutics). On 25 November 2024, they announced that they will acquire and privatise Canadian wealth management platform CI Financial for USD 8.7 billion.
In Qatar, the QIA recently invested USD 180 million into TechMet, a Dublin-based investment company that supports strategic projects that scale production and refining of critical minerals, and is co-leading the Series D funding round for Cresta, a generative AI contact centre platform, raising USD 125 million. Meanwhile in Saudi Arabia, PIF has played a crucial role in the VC market, pumping c. USD 267 million into a new fund called Jada Fund of Funds (Jada), aimed at supporting VC and private equity ecosystems. Jada led TVM Capital Healthcare’s last USD 250 million round, supporting healthcare sector objectives. Sanabil has also been active and recently led the USD 10 million seed round for Simplified Financial Solutions Company (SiFi), a local finance management platform.
Meanwhile Saudi Arabia has also benefitted from an influx of international investors supported by government programs and initiatives driven by the Ministry of Communications and Information Technology and the National Technology Development Program, as well as training programs and investment structures through Jada and the Saudi Venture Capital Company. This has contributed to bolstering its venture capital deal flow, with Saudi Arabia accounting for 40% of the total venture capital deals in MENA, closing 178 deals in 2024 (the most of any nation in the region).
Legal and regulatory framework
The legal and regulatory framework governing venture capital in the Middle East has evolved rapidly to accommodate growing domestic and international interest. Further, government entities in the GCC are fast-tracking their investments in their local startup ecosystems through the provision of seed funding, training and strategic advice to VC investors to help them navigate the key structures, requirements and challenges in the their VC landscapes.
The ADGM serves as a pivotal hub for the regional VC market, with investments frequently structured through ADGM holding companies. The ADGM has responded to this increased demand by leaning in to the VC market and introducing several initiatives and incentives in an effort to consolidate its startup ecosystem and facilitate investments into it. One such initiative is the ADGM’s “Tech Start-Up” licensing regime, which allows startups to obtain an operational licence in the ADGM. The licence offers access to a professional services support programme and facilitates opportunities for VC investors to network with more mature businesses within the ADGM. Similarly, the ADGM’s tech ecosystem, Hub71, connects startups, investors and government entities to drive innovation.
The ADGM has developed its own specific Regulatory Framework for Fund Managers of Venture Capital Funds and supports fintech innovation through “Regulatory Laboratory”, its regulatory sandbox that allows startups to test products in a controlled environment.
In Dubai, the DIFC was an early supporter of the start-up eco-system with the launch of its Innovation Hub, home to the first and largest financial technology accelerator in the Middle East, Africa, and South Asia region. One of the most significant recent developments is the DIFC’s Digital Assets Law which took effect in March 2024 and provides a comprehensive regulatory framework for digital assets, including cryptocurrencies. This aligns with the DIFC’s aim to foster innovation and attract venture capitalists to the region and is supported by the launch of specialist startup ecosystems such as FinTech Hive, the region’s first fintech accelerator, and the introduction of the FinTech Accelerator Programme which provides startups access to leading accelerator programmes in relation to VC transactions in the DIFC. The DIFC also introduced its Innovation Testing Licence in 2017, which continues to encourage growth and innovation.
In mainland UAE, the Securities and Commodities Authority substantially updated its VC funds regime in 2023 in order to encourage the establishment of investment funds onshore in the UAE and to reduce the applicable financial and administrative requirements, including (i) a reduction in minimum share capital requirements for fund management companies; and (ii) removal of ownership restrictions previously remaining in place for such entities.
Saudi Arabia has also made significant strides in enhancing its regulatory framework to support venture capital. The Capital Market Authority has introduced regulations, such as the Instructions on the Direct Financing Investment Funds, and the Investments Funds Regulations that facilitate the establishment and operation of venture capital funds. The Saudi Arabian General Investment Authority also offers various incentives to attract foreign investment, including streamlined licensing processes and tax benefits. The Kingdom’s Vision 2030 initiative and introduction of the Foreign Investment Law, which will come into force on 7 February 2025, further underscores the government’s commitment to cultivating a dynamic VC landscape.
Qatar has also recently taken similar measures to encourage the local start-up ecosystem, launching its first venture capital fund in Q1 2024 with the aim to invest more than USD 1 billion in international and regional venture capital funds, with a focus on the tech sector, including fintech and edtech, as well as the healthcare sector. The aim of the fund is to attract leading international VC funds and entrepreneurs to Qatar and the wider GCC and growing the regional VC market.
Conclusion
The dynamic VC landscape in the Middle East is increasingly driven by the participation of its SWFs who are channelling substantial investments into high-potential sectors like AI, fintech, e-commerce, healthcare, and renewable energy that support the region’s economic diversification and long-term sustainability. The regional SWFs are also demonstrating their willingness to deploy capital at an unprecedented rate. In 2024, Mubadala was the most active SWF across the globe, accounting for around 20% of the approximately USD 136.1 billion spent by SWFs worldwide, whilst regional SWFs spent a record USD 82 billion combined.
While the legal and regulatory framework in the Middle East is still developing, it is increasingly influenced by modern civil law codes and common law principles. Importantly, given the regulatory structures of financial free zones such as the DIFC and ADGM, the regional VC market is able to rapidly absorb and reflect the market trends emerging from the US and the UK. As the region’s frameworks continue to evolve, they will further enhance the region’s attractiveness to both local and international investors, solidifying the Middle East’s position as a global hub for venture capital and innovation.
Other authors: Johnny Farhart, Associate; Stephanie Nasnas, Junior Associate
