Why Hungary is in the top 5 European countries for VC investments

If you’ve watched our charts on VC money in Europe, a few things stand out: one, that VC investments tanked in recent years. But also, that Hungary seems to be performing quite strongly compared to the rest of Europe.

Whiteboard asked for some insights, and received this very detailed inside view from Hungarian startup watcher Balazs Szabo. </Editor’s note>

Q: How come Hungary is doing so well in terms of VC funding? It’s in the top five by GDP with countries like Sweden, Finland, UK, Denmark.

A: Hungary is among the most active countries in VC investments in Europe thanks to the VC development program of the EU. The program is called JEREMIE, which stands for “Joint European Resources for Micro to Medium Enterprises”.

Jeremie is an initiative of the European Commission that uses EU Structural Funds to finance small and medium sized enterprises using equity, loans or guarantees. The investments are done through a revolving Holding Fund acting as an umbrella fund and involving private capital. The companies should not be older than 5 years old and they have geographical restrictions as well (registered in Hungary).

There are eight venture capital funds taking part in the Jeremie program, and they started the investments in Q2 of 2010. They had around € 128 million to invest in innovative Hungarian startups and SMEs. So far (up to september 2012) the eight “Jeremie” funds have made 61 investments in Hungary, worth around € 53 million in total.

Q: Is that level of VC funding for Hungarian startups sustainable, or was 2011 a special year?

A: 2011 was special in the sense that it was the first full year of the investment period for the JEREMIE funds. The € 75 million that remains in the funds should be invested by the end of 2013 in order to close the Jeremie I program.

But the Hungarian Development Agency already announced Jeremie II: the creation of 10 new VC and seed investment funds that will have a total of € 145 million to invest in seed and growth stage startups starting in 2013 and finishing in 2015.

Q: Who are the stars in the Hungarian startup scene?

A: In recent years, Hungary has had nice success stories like Prezi, LogMeIn, Ustream – brands that attained global recognition by finding investors like Accel Partners (Prezi) or even going to IPO at NASDAQ, like LogMeIn.

The success stories seem to be continuing: Seedcamp invested in Antavo in 2012, and three Hungarian companies were among the top 10 companies selected for the Startup Sauna Slush (MailMill, Mcule.com, Soometa.com).

This gave them the opportunity to pitch in front prestigious international investors in November 2012 resulting in fruitful follow up discussions. And only last week, Brickflow was selected for the Startup Chile program.

Q: Who are the movers and shakers in the VC and angel community?

A: The most active VCs are PortfoLion (recently closed the exit of Cryo Management Ltd. worth 5 to 9 Million EUR), Euroventures, DBH Venture Capital , Central Invest, Finext and Biggeorge’s in the Hungarian VC market.

Q: Are there entrepreneurs in Hungary who have done big exits already? If so: explain a bit who they are.

A: Hungary has an ecosystem of successful serial entrepreneurs and business angels. One of the most successful entrepreneurs is Marton Szőke, founder and owner of Indextools, a software company specializing in enterprise on-demand web analytics software.

In April 2008 Indextools got acquired by Yahoo! Inc. At the time of the acquisition Indextools was recognized as one of the top five web analytics vendors world-wide by Forrester/Jupiter Research. I would also highlight Ernő Duda who is a serial entrepreneur having started 16 companies in the past 20 years, all in different industries.

Erno currently runs Solvo Biotechnology, the largest independent biotechnological company in Hungary and also a global leader in providing drug transporter technology.

Q: Where are the places to be – are there different hubs in Hungary, or is the action mainly around Budapest?

A: There are some promising startups coming from different towns (Antavo from Szeged), but the technological and startup life is still Budapest centered.

Q: Is there something like a Hungarian specialty when it comes to tech and innovation? Something that Hungary is famous for?

A: Hungary is famous of the engineerial talent and human capitals. And for facilitating long, visionary talks, we have our national brandy Palinka!

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About the author

Balazs Szabo

Balazs Szabo is head of Business Development at InVendor and the Regional President of Kairos Society in Central Eastern Europe. (Kairos Society is a global network of top young entrepreneurs and global leaders using innovation to solve the world's greatest challenges.) He is also a member of the education committee at Hungarian Venture Capital and Private Equity Association. He has been elected four times as a Future Leader, by The Ambrosetti Forum (IT), by the World Foresight Forum (NL) by the St. Petersburg International Economic Forum, Youth International Economic Forum (RU) and Open Innovations Forum (RU). You can find Balazs on LinkedIn.

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