The missing middle: why the Middle East still struggles to scale companies

The Middle East is not short of entrepreneurial ambition. It is short of the institutions required to turn ambition into scale.

For the better part of a decade, the region’s start-up narrative has been one of emergence. New funds have been launched. founders have become more visible. Governments have embraced innovation as part of a broader economic transition. Capital has followed, at least to a point. The result is a familiar conclusion: that the region is building a venture ecosystem, and that its challenge is simply to keep that momentum going.

That conclusion is too generous.

The Middle East has undoubtedly made progress, but it still lacks real depth at the early stage, and it remains strikingly underbuilt at the growth stage. The venture layer is still nascent. The scale-up layer is missing in action. That is the more important problem, because it is one thing to produce new companies and quite another to produce companies that can dominate categories, expand across markets, professionalise at speed, and eventually become credible public-market businesses.

This is where ecosystems reveal what they are made of. Early-stage activity can be encouraged by enthusiasm, policy support, and a willingness to fund possibility. Scale requires something harder. It requires specialised capital, operational judgment, stronger governance, better management, and a credible route to liquidity. In the Middle East, too much of that remains thin, imported, or fragmented.

The region therefore suffers from a double weakness. It does not yet have enough genuine early-stage heavyweights, and it has even fewer institutions built for the growth phase. That distinction matters. Much of the current discourse treats the first problem as largely solved and the second as the final frontier. That flatters the market too much. The truth is more sobering. Venture capital in the region is still young and uneven. But if the first layer is underdeveloped, the second is weaker still.

That becomes clearer once one distinguishes venture investing from growth investing. The two are related, but they are not the same discipline. Venture capital, particularly at seed and pre-Series A, is built around uncertainty. It backs teams before systems are formed, products before markets are proven, and possibilities before economics have stabilised. It is tolerant of failure because failure is built into the model. The manager’s job is not to be right every time. It is to build a portfolio that contains enough upside for a few exceptional outcomes to justify the rest.

That logic does not travel neatly into later rounds. Once a business reaches the scale-up phase, the problem changes. The question is no longer whether the idea might work. The question is whether the company can execute repeatedly and at increasing levels of complexity. Can it build management depth without losing speed. Can it expand into new markets without turning regional ambition into operational confusion. Can it introduce discipline without crushing the entrepreneurial instinct that got it this far. Can it spend money with precision rather than heat.

Those are not venture questions in the classic sense. They are operating questions, capital-allocation questions, governance questions, and eventually public-market questions. They require a different kind of investor.

This is where one of the region’s central weaknesses becomes visible. Too many investment managers are still configured for volume rather than precision. That may be acceptable in earlier-stage venture, where a shot-gun approach is part of the design. It is far less convincing from Series A onward. At that point, capital should become more selective, not less. The manager needs to understand not just how to source deals, but how companies behave under strain, where scaling breaks, what management gaps matter, how unit economics translate across markets, and how to distinguish real momentum from expensive illusion.

In other words, the scale-up investor cannot simply be a venture investor with a larger cheque.

The real industry talent sits in that missing middle. It sits with the people who know how to identify which businesses are ready to absorb capital efficiently, which founders can transition into institutional leadership, which companies are capable of regional expansion without losing control, and which governance structures can withstand scrutiny long before an IPO is in sight. These are the scale-up snipers. They do not rely on portfolio sprawl. They rely on judgment. They are harder to build, less visible than the louder venture personalities, and far more important to the long-term health of an ecosystem.

Today, much of that capability is still outsourced. When the region’s best companies need late-stage validation, strategic operating insight, or sophisticated growth underwriting, the instinct is often to look abroad. That may be understandable in a young market, but it is not a viable end state. No ecosystem becomes fully healthy if its most important scaling capabilities sit outside its own institutional base. The Middle East does not simply need more capital. It needs homegrown scale-up talent.

There is, however, one reason for optimism. The economics of scaling a company are changing, and they are changing in a way that should favour emerging ecosystems that move quickly.

The scale-up stage should no longer be regarded with the same fear it once inspired. Historically, growth required organisations to become heavy very quickly. More headcount, more layers, more systems, more capital burned simply to manage complexity. A great deal of later-stage financing went not into value creation but into carrying the inefficiencies of scale itself. That model is being disrupted.

AI will not rescue weak businesses, nor will it compensate for poor management or undisciplined capital allocation. But it does change the operating equation. Companies can now reach a higher level of organisational sophistication with fewer people, better data, faster reporting, leaner support functions, and more responsive internal systems than would have been possible even a few years ago. Elements of coding, customer support, compliance workflows, sales enablement, analytics, and operational monitoring can all be handled more efficiently. That does not eliminate execution risk. It reduces the friction around it.

This matters because it changes the underwriting case for growth capital. If later-stage companies can scale with more precision and less organisational bloat, then the capital required to move from traction to maturity can be deployed more intelligently. That should make growth less intimidating for serious investors, not more. It should also strengthen the case for building regional scale-up platforms now rather than postponing them until the ecosystem feels more mature. In some respects, the tools now exist to build more disciplined companies with less wasted motion than in earlier cycles.

Yet capital and technology alone will not solve the structural problem. The public-market question remains unresolved.

The region’s exchanges are still largely organised as separate national systems, each with its own investor base, liquidity profile, listing culture, and regulatory logic. That may work for domestic champions and mature businesses. It is less effective for growth companies that need a broader pool of capital, a larger field of analyst attention, and a more coherent standard for how regional scale should be valued. Fragmentation does not simply reflect political reality. It imposes an economic cost. It divides investors, divides standards, and divides ambition.

What the region should be working toward is a genuinely unified growth investment exchange, or at least a common regional platform for growth equity across the GCC and wider MENA. That does not require the abolition of existing exchanges. It requires a recognition that the current architecture is ill-suited to the next phase of the region’s economic development. If the Middle East wants to produce a meaningful class of growth businesses, it needs a market structure that allows them to be funded, benchmarked, researched, and eventually listed on a regional rather than merely national basis.

A unified growth exchange would do more than provide an exit route. It would shape behaviour earlier in the cycle. It would encourage greater convergence in standards. It would deepen the institutional investor base for growth equity. It would allow companies to prepare for public-market scrutiny in a setting that reflects their regional footprint rather than their domicile alone. It would help anchor price discovery within the region instead of exporting the most important phase of validation elsewhere. Most importantly, it would create a more credible end point for growth capital, which in turn would make growth investing easier to underwrite in the first place.

Without that, the ecosystem risks remaining trapped between two unsatisfactory poles. At one end sits a venture market that is still too young and too thin to claim real institutional maturity. At the other sits a public-market structure that is too fragmented to function as a robust destination for regional growth businesses. Between the two lies the missing middle: the part of the capital stack where companies either become serious or begin to stall.

This is where the market now needs to focus. The region does not need more ecosystem theatre. It does not need more superficial celebration of founder culture or more inflated claims about how far venture has already come. It needs better firms at the early stage, yes, but above all it needs a deliberate effort to build the scale-up layer. That means dedicated growth capital. It means managers with real operating and strategic experience. It means founders who understand that later-stage capital demands a different standard of governance and reporting. It means a more serious conversation about public-market integration. And it means taking advantage of AI not as a slogan, but as a tool that makes disciplined growth more achievable than before.

The Middle East has reached the point where admiration for entrepreneurship is no longer enough. The harder task is to build the institutions that allow good companies to scale into enduring ones.

That is the gap 1648 Capital believes now deserves urgent attention. We do not see growth capital as an extension of early-stage venture, but as a distinct capability that must be built properly if the region wants a healthier ecosystem. We believe that capability should be homegrown, regionally connected, and designed with public-market logic in mind from the outset. And we are actively looking to collaborate with founders, allocators, policymakers, exchange architects, family offices, institutional investors, and operating partners who believe the same missing middle must now be built.

The Middle East has shown that it can produce ambition. The next test is whether it can build the machinery required to scale it.

Source material

This article draws on recent market analysis and ecosystem reporting from McKinsey, MAGNiTT, Wamda, STV, Shorooq, Saudi Venture Capital, and related discussions around regional venture formation, growth-capital shortages, exit pathways, venture debt, and exchange architecture. The argument is intended as a structural diagnosis rather than a statistical note, and readers are encouraged to review those materials directly alongside the broader market evidence now emerging across the region.

By Louay Aldoory

Louay Aldoory is the Founder at 1648 Capital. 1648 Capital is a corporate advisory and private markets platform partnering with founders, shareholders, and investors on complex growth, restructuring, and capital structuring initiatives. We combine strategic insight with execution discipline, supporting businesses from transformation through to institutional capital alignment.

The strategies presented are thematic and do not constitute investment advice (or advice of any kind). No assurance can be given that the objectives of the investment above strategies will be achieved; the strategies involve risk (including, without limitation, illiquidity risk) and may incur a loss on some or all capital deployed. The opinions expressed, or indeed the information or assumptions that underpin them, may contain errors, mistakes, or omissions; no assurance or warranty can be made as to the accuracy or completeness of this information, and readers should not place any reliance on this content to execute investment decisions or for any other purpose. Readers accept full responsibility for using this content and are kindly requested to consult with their professional advisor before making any investment decision related to the same.

CHANGE BEGINS WITH A CONVERSATION