Venture capital (VC) and private equity (PE) funding in the UAE is projected to exceed $2 billion by the end of 2024, marking a more than threefold increase. In the first nine months of 2024, UAE startups raised approximately $690 million. Experts anticipate a funding surge through the last quarter of this year and into 2025, as declining interest rates make equity investments more appealing and profitable.

Funding for UAE startups is forecast to increase from the $638 million raised in 2023 to $2 billion in 2024, with further growth to $2.5 billion by 2025. Increased global investor participation, drawn by the region’s growth prospects, favorable regulations, and expanding tech sector, is expected to drive this trend.

Investment experts foresee a shift toward safer investment structures, with investors now preferring options like robust cash coupons, contractual capital returns, and equity growth exposure through instruments such as warrants. Khaled Talhouni, Managing Partner at Dubai’s Nuwa Capital, noted, “We expect funding to stabilize around the $2 billion mark in 2024 and potentially accelerate to $2.5 billion in 2025.” He added that funding could be influenced by national budgets and oil prices, impacting both deployment pace and available capital.

According to Sharaf Sharaf, Fund Head at Amplify Growth Partnership, investor focus will likely shift toward startups with solid cash flows, as the era of cheap capital ends. He noted that startups generating consistent revenue streams will attract more funding. After a substantial 65% drop in 2023, venture funding in the UAE showed signs of recovery in the third quarter of 2024, with some startups securing investments of up to $30 million.

The UAE’s thriving startup landscape is also influenced by a younger, tech-savvy demographic, making the region ripe for growth in the innovation economy. The anticipated interest rate cuts will further boost startup funding prospects. 

Sharaf observed that fintech startups are increasingly turning to debt rounds, as their predictable revenue models make them well-suited for debt financing. He added that as regulatory support for fintechs grows in MENA, debt financing will likely become a preferred funding source for scaling digital payments, SME lending, and financial services models.

As interest rates decline, investors are favoring strategies that combine cash returns and capital safety with growth exposure through equity instruments like warrants. This approach allows investors to engage with high-growth companies in the UAE and GCC without relying solely on exits for returns.

Market Consolidation and Acquihires Expected as Funding Grows

Despite the expected funding growth, the UAE and broader region may see large-scale startup failures, leading to a wave of acquihires and consolidations. The UAE and GCC are increasingly recognized as global investment hubs, supported by ambitious national agendas, strategic positioning, and robust economic fundamentals, attracting more global investors to the region.