Gulf funds recast venture capital as strategic pillar

• VC now seen as core allocation
• Top managers drive outsized returns
• Exit timelines stretching to a decade

Gulf institutions and sovereign wealth funds no longer view venture capital as an alternative asset class, but rather as a core component of their holdings, analysts say.

Long seen as one of the “most misunderstood areas of modern portfolios”, venture capital is gaining renewed traction in the Middle East with stronger institutional backing.

According to sector practitioners, investors are increasingly treating the asset class as a structured, long-term allocation rather than a speculative bet.

SC Ventures, the venture building arm of Standard Chartered bank, confirmed during a webinar that it has continued to deploy capital during the Iran war, with collaborations across Asia, Africa and the Middle East.

“For SCV it’s not a pause moment, it is a conviction moment,” said Gautam Jain, operating member at SC Ventures. “The real question is not, ‘Should I invest in VC?’, it is ‘Can I afford to leave it until it’s too late?’.”

He added that capital is becoming more concentrated globally, particularly in industries such as artificial intelligence and digital asset infrastructure.

“This is no longer an early stage experiment. This is capital chasing inevitability. Venture capital is evolving from finding the next big thing to getting access before [everyone else].”

Sovereign wealth funds are capitalising on rising regional demand for fintech, for example, with Abu Dhabi’s Mubadala and Saudi Arabia’s Public Investment Fund investing in buy-now-pay-later platforms Tabby and Tamara.

PIF has also backed Jada Fund of Funds and Sanabil Investments, which support global VCs such as Founders Fund and Andreessen Horowitz. Family offices often act as limited partners in regional VC funds and co-invest alongside sovereign investors.

Varied performance

Venture capital is characterised by a wide spread between top-performing funds and the rest of the market, making the role of strong fund managers more critical.

Over a 10-year period top-performing fund managers can deliver more than twice the returns of median ones, according to Jain.

“We have seen that the top 5 percent of managers generate north of 45 percent in annual returns, whereas median managers’ returns are approximately 13 percent,” Jain said.

Dubai Future District Fund, a billion-dirham fund of funds said it is doubling down on backing regional managers to diversify capital allocation but also to signal to global investors that there is confidence in the local market.

“Fund managers are the most effective way to ensure the ecosystem has sustained dry powder and continues to deploy through cycles,” Jain said.

“For us, it’s not about slowing down. It is about scaling how we reinforce the liquidity question and confidence in the market.”

While venture capital has traditionally been sold as an uncorrelated asset class that outperforms public markets, the reality, according to Jain, is much more complex. “It is the most misunderstood area of modern portfolios,” he said.

“VC isn’t about averages, it is about outliers. One company can return an entire fund, everything else just fills the space. If you miss the winners, you underperform, if you catch one you redefine your returns.”

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Overall, Mena VC funding was up 31 percent in the first quarter of 2026, but data insights firm Magnitt warned that first quarter data primarily reflects deals made before the Iran war began, with the real impact only expected to show in the third and fourth quarters. 

Where the money comes from

About half of Mena capital came from international investors last year, with a higher concentration in the UAE. That number is already down 26 percent in the first quarter, with US investors driving the steepest retreat.

“Uncertainty is the devil of decision making,” said Philip Bahoshy, CEO of Magnitt. “At a time of uncertainty for investors, it slows that next investment round, that potential M&A transaction.”

Exit timelines remain a pain point in the region. Exits used to take around seven years but have now stretched to nine or 10.

Of 12 tech-backed IPOs in the region only four have delivered positive returns over a 12-month period, highlighting the lengthening exit window, Bahoshy said. 

“The next generation of growth is driven by continuing to fuel the top of that [VC] funnel.

“Seed investments, accelerator programmes, angel investors that may be impacted by the volatility in the public market – they all need to continue to deploy in this asset class, which remains attractive,” Bahoshy said.