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An Inside Look at the Hungarian Ecosystem

The Hungarian startup ecosystem is often labeled with the ‘PreziUstreamLogMeIn’ namesnake – these three internet giants are by far the most well known names in the Budapest scene.  Truth be told, there are many other players on in the marketplace.

"The Hungarian startup scene is like a good goulash in the making: all the ingredients are in there, starts to “smell” real but it is still cooking."

The government has started talking about supporting the ecosystem in 2013.  The dialogue took the form of the so-called BudapestHUB public-private task force which in 2014 produced a white paper called Startup Credo.  There have been a number of initiatives since then, the two most important ones being the development of Design Terminal a worn down bus terminal in the middle of Budapest converted into a trendy, full fledged ‘startup point’, where young entrepreneurs and startups meet, learn, cooperate and the so called Gazelle program, which is focused on providing financing for early stage companies via select accelerators.  The Hungarian Innovation Federation (MISZ), which has close to 100 member companies has launched a startup panel to connect the Federation and the ecosystem, primarily via its ‘Startup Culture’ Facebook page (2200 members).

There is a strong push for state level cooperation in the Visegrad 4 (V4) framework – Czech Republic, Slovakia, Poland and Hungary.  There have been a number of conferences, market access tours in Silicon Valley in the recent months.  Focusing on the region is definately the way to go and there are some small but promising signs that it may work.

Budapest seems to be awash in funding options.  For a long time home for private equity firms during the era of privatization, Budapest became the No.1. capital in the EU in terms of per capital venture capital in the past 5 years.  There are three sources of venture capital in town: the traditional VC firms mananing private funds: iEurope, Docler to name the largest ones.  Then there are the so-called Jeremie funds – those entities which came to life in response to the similarly named EU program to support SME development.  Since 2009 there are 28 of them investing close to HUF140bn in four different programs (targeting seed and growth companies).  Close to 80% of these funds are depleted by now as most of it has been invested in 350 companies during the past 5 years.  Finally there are the government owned venture funds, Szechenyi and Corvinus (MFBInvest) which have made investments to more than 150 companies to date.

Initially Budapest was not a logical place for VC’s as there were not many entrepreneurs around.  But still, there were some, and by now they have become business angels in their own right propping up the fledging new scene with fresh investments – just think of Peter Balogh (NNG), Marton Anka (LogMeIn), Szabolcs Valner (Vatera), Zoltan Kovacs (Kirowsky) or Marton Szoke (Indextools) to name a few.

Startups are the newest and least understood form of business in the Hungarian landscape – many are still preoccupied with the definition of what a startup is.  As a general rule, Hungarian startups are strong on technology and technical development – many existing startups came to life as a side project in some outsourcing development workshop.  There are more engineers in startups than business people and it shows. The hottest domains are cybersecurity, encryption technologies, big data and SaaS.   Historically, in Hungary there has been a lot of focus on energy and medical sciences and it certainly reflects even in today’s startup statistics. The latest trend in the ecosystem is that many join in from considerable corporate and agency background.  Would be difficult to name the full of list the hottest startups, but to name a few:  Trezorit (cloud security), Synetiq (neuromarketing), (admetrics), Neticle (metrics). The biggest info source for the Hungarian ecosystem is the Startup Enterpreneurs Facebook page, with close to 8,000 members.  There is a small but growing list of companies with considerable business activity and international business presence: GravityR&D, Maven7, Freelusion, EOptika, Multipass.  All of them are in the process of setting up offices abroad, primarily in the US and Asia.

The universities do not want to miss out either – many of them started courses focusing on effective entrepreneurship or even an entreprenership certificate program.  The top schools in this regard are CEU Business School, Corvinus, Budapest Technical University (cooperating with Demola), Budapest College of Economy, Edutus.

The ecosystem would not be complete without the incubator/accelerator sector.  It all started in 2007 by Kitchen Budapest, a Hungarian Telecom funded incubator, followed by Colabs in 2011, which formed the first hybrid coworking-incubator space.  It was followed by iCatapult in 2012, which focused on making startup initiative international.  Today the lineup is completed with Oxo Labs, WS Labs (both focusing on early stage), iGen (social entrepreneurship), Traction Tribe (special focus on US validation and market access) and of course, yours truly, Digital Factory :).  By the way, DigFac has had 10 companies before its current CEED Tech program, which added another 6 to the mix.

The Hungarian ecosystem, like a real startup, is in fast growth mode.  It almost doubled in size since last year, by today it employs close to 3,000 people.  Many Hungarians are currently abroad, some working at major internet companies who will one day return and start to build their own ventures.  Compared to what the ecosystem was 3-4 years ago, it feels like a time travel… We can only hope that the pent up energy and passion will turn into validated and profitable products

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