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The startup ecosystem of Hungary

The startup ecosystem of Hungary

16 Apr 2020

From the startup development point of view, Hungary is interesting as a country which managed to build a startup ecosystem from scratch and “brought up” a few unicorns at once. Today’s startup ecosystem of the country is generally considered as a standard for the region, as all elements of the system are harmonically interconnected and working effectively. We will have a look at how Hungarian startups live and why the Central European platform for innovative business development is so attractive, and even more in today’s article.

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General information

About 10 years ago, when the global financial crisis significantly influenced the country’s economy, the Hungarian government made a bid for innovative entrepreneurship, and it appears that they got their money’s worth. Today, the country is considered as one with the highest Human Development Index: in the current rating list, Hungary is ranked 43 out of 189. In the Ease of Doing business list, the country is ranked 52, which is also a fairly high indicator.

According to the data of StartupBlink global research centre,the startup-ecosystem of Hungary is ranked 39 out of 202. The most propitious conditions for startup development are created in Budapest where the fifth part of the country’s population, in addition, Szeged and Debrecen have their own startup communities.

The startup ecosystem of Hungary was established in 2006 and in 2010 it gained some acceleration. It was significantly boosted by the JEREMIE (Joint European Resources for Micro to Medium Enterprises) program, which implies the development of small and medium entrepreneurship. Up to 2013, the financing in the framework of the program amounted to $200 million, and many startups appeared thanks to this program.

A significant role in the development of the Hungarian startup ecosystem plays the state policy. One of the government’s long-term goals is to develop the country’s startup ecosystem. In Hungary, there are several media branches that cover the events of the startup ecosystem — these are the online resources of Forbes Hungary and Index.hu as well as Business HVG magazine.

The country holds many startup events, contests, workshops, events for women who are involved in the startup industry, local and international conferences, meetups. In particular, many events such as Brain Bar (mix of a technological conference and a music festival sponsored by Google), Craft Conference (a conference dedicated to software development), and global hackathons and meetups are held in Budapest.

The Hungarian startup environment is attractive to other neighbouring countries. In general, it is favoured with various facts. First of all, the Ease of doing business in the country (the process of creating a company) takes a bit more than one day. Secondly, the high professionality of local IT-specialists. Thirdly, a lower salary compared to the average salary in the EU. Fourthly, significantly lower rent and the cost of living in general. Finally, tax incentives for business angels are making the country friendly to investors.

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The startup ecosystem of Hungary

Startup infrastructure in Hungary

The country has all traditional elements of the startup infrastructure: incubators and accelerators co-workings.

Here is a list of the most interesting incubators and accelerators.

Design Terminal — the leading innovative agency in Central Europe with incubation and acceleration programs. Currently, there is a selection process for the three-month mentor program, both Hungarian and international startups can apply. The platform was created in 2014 and during these years more than 1000 projects have passed it. Main directions are education, mobile applications and the environment. Startups have available co-workings, constant contact with mentors, access to the expert community, Google, IBM and Amazon services.

CEU InnovationsLab (CEU iLab) — a project supported by the Central-European University, it functions as a non-commercial startup incubator. It helps startups not only to develop the idea and find mentors but also get them to know potential investors and attract financing to their project in a long-term perspective. In 2017, at the Central European Startup Awards (the part of Global Startup Awards, the award that summarizes startup achievements in the region of Central Europe), the incubators program was nominated as the best of all incubators and accelerators in Hungary.

OXO Labs — incubation and acceleration program. It helps startups from Central Europe to scale their products and enter the global market. Annually, they select 15–20 teams-participant, and the best startups may aspire to financing for a project from business angels that amounts to €200 000. Besides, OXO Labs helps all project-participants to find investors. The program offers interaction with mentors and investors, participation in workshops, meetups and other professional events. OXO Labs has a subproject — the incubational program OXO Cybersecurity Lab for startups from the cybersecurity industry. In the incubator’s framework, selected projects interact with mentors, participate in the industry based trainings and receive the necessary knowledge about product development, its validation, business strategies, team buildings and the process of attracting investments

Start it@K&H — a technological incubator and community platform for startups from Hungary and Central/Eastern Europe regions. The participation is free, startups afford the office space and constant contact with mentors.

SparkLab — a non-commercial startup incubator that offers a three-month-long mentor’s program in the form of an educational camp. The incubator is interested in projects which aim to enhance the quality of life.

Bridge Budapest — a six-month-long program founded by successful Hungarian startups — Prezi, Ustream, LogMeIn, NNG. The project helps startups to present their products on the global market.

Considering startup-hubs and co-workings, Hungary has a few centres where startuppers like to gather around. The top-list:

  • HubHub — a global provider of co-workings with offices in Bratislava, Warsaw, Prague and London. The branch in Budapest appeared in 2018. This platform is open for freelancers, entrepreneurs and startuppers.

  • Kubik — one of the most popular co-workings in Budapest. It is located in Budapest’s city-centre and offers a flexible rent of office spaces for a day and longer periods. Also, you can rent a conference-hall, organise and hold an event in place.

  • Minneraris Startup Campus — a place for meetups, conferences, workshops, hackathons and startup-parties.

  • Loffice — one of the first co-workings in Budapest. It appeared in 2009 in the building of the old music instrument-making factory. Today, the place holds startup and cultural events.

Kitchen Budapest (KiBu) — a platform for your researchers and developers. Along with educational events, people can develop and test their product prototypes.

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The startup ecosystem of Hungary

 

Famous startups

According to the researcher’s data from Korvin University in Budapest, which is dedicated to characteristics of the Hungarian startup ecosystem, the majority of startups have an IT-background, the average age of startuppers is 26–50 year (80% of such), 86% of all startuppers are men, and only 14% are women.

In the country, there are 10 million people and it is enough for the majority of projects. Usually, the most successful Hungarian projects have a common feature — they all aimed at the global market, not at the local one.

Juicy stories

Prezi

A cloud platform for creating qualitative and eye-catching presentations. The project was founded in 2008 in Budapest, and in general, it attracted $72.8 million. Today, the company has offices in San Francisco (USA) and Riga (Latvia). More than 100 million active users have already created more than 360 million presentations with the help of the service. This is the most famous Hungarian startup and the first unicorn of the country.

The company uses the freemium model: presentations which are created in the free version of the product, appear on the website (prezi.com) and are available in free access. Clients who use paid packages, can manage the privacy settings.

Ustream

A streaming service that was launched in 2007; it has offices in San Francisco, Los Angeles and Budapest. In 2011, the company closed the last investment round. At the moment, the total sum of the attracted investments amounted to $103.8 million. In 2016, IBM bought the company. According to the data from Fortune publishing, the price of the concluded deal is $130 million. Two years later, Ustream was renamed to IBM Cloud Video. In the client-list, there are IMG Media, Viacom, PBS NewsHour, CBS News, Logitech, Samsung and Panasonic.

LogMeIn

Software that provides users with remote access to computers and their administration. The product is focused on three business-directions, each direction has its own product: communication and collaboration (GoToConnect, GoToMeeting, GoToTraining, join.me and others), accessibility and security of IT-systems (LastPass, LogMeIn PRO, GoToMyPC, LogMeIn Central), communication and customer support (Rescue, REscue Assist, Rescue Lens, chat-bot Bold360).

The company was founded in 2003; there were 2700 people working at the end of 2017. Tens of millions of users per day, more than a billion customer interactions and twenty billion minutes of voice calls per year.

In December 2019, it was reported that by mid-2020 it would be sold to Francisco Partners and Evergreen Coast Capital Corp. for $ 4.3 billion.

AImotive

They develop an AI-product for autonomous transport. The technology develops for auto-manufacturers, and the final product will be used to create fully autonomous vehicles that will be able to work in any conditions and places (aiDrive).

The company was founded in 2015 in Budapest. The project has closed three rounds, in the first they attracted $2.7 million, in the second — $6.9, and in the third — $37.9 million. At the beginning of 2019, the team received a grant of €71,4 thousand.

NNG

A startup appeared in 2004, being named NavNGo. Today, NNG is an awesome company for personal navigation that creates and produces solutions for navigation, which are used for personal navigation, wireless connection, in manufacturing and auto-industries. The software is available in 50 languages and now it is used in 30 car brands.

Young projects

Barion Payment

A startup’s project is a service for online and mobile payments, which allows to track purchases, transfer and receive money without a commission, withdraw money and manage bank cards. It is possible to make payments with the application in 5000 internet-shops. It is available in the English, Czech, Slovene, German and Hungarian languages. The project has a million users, and it is possible to use the application in 20 EU countries. In 2017, the project closed the A round with investment amounting to €2 million from Home Credit Group.

Shapr3D

The first-ever application for professional 3D-modelling. The project was launched in 2015 and today it is used by engineering mechanics, interior and graphic designers, industrial designers and jewellers. The total sum of attracted investments amounts to $7.3 million (the A Round was closed with a $6 million cheque, the lead-investors were Point Nine Capital and Creandum).

Talk-a-Bot

A chat-bot which can be used in a number of industries: from media and electronic commerce to fintech companies. The project was launched in 2016 and has already attracted $2.3 million (in the Seed round). Among strategic partners, there are Techstars, Microsoft, PayPal, Viber, Nestle, Google Developers Launchpad.

Turbine

A med-tech project which appeared in 2015. Artificial Intelligence lies in the program’s basis. The product of the project is a platform that allows testing medicine, modelling personal therapy for patients. In plain English, it is a simulator which allows modelling an endless number of experiments, it analyses mistakes and successes and modelizes a possible result of any medical experiment. Last year, during the Seed Round, the startup attracted €3 million.

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The startup ecosystem of Hungary

 

Financing

At the early stages of a startup development, having the idea and its development, startuppers can hope for help from incubators and accelerators. When a company starts to generate the revenue, works on the products Beta-version, approves its market demand, it may hope for help from venture investors.

The main sources of startup financing in Hungary:

  1. Founder’s funds — 86% of all startups resort to them;

  2. Money from relatives and friends — 27% of all innovative entrepreneurs receive it;

  3. Venture capital investors’ funds — they are attracted by 24% of all startups;

  4. Business angels’ funds — 9% of startups get it;

  5. Bank loans — they are used by 3% of startups;

  6. Crowdfunding — 2% of startups resort to it.

Hungarian Venture Capital and Private Equity Association (HVCA) is representing the interests of private and venture capital industries, among members of the association, there are 25 venture funds and 15 business angels. It was founded in 1991 and today, it is one of the most dynamic organisations of the region.

Here is a top-list of the most active venture investors in Hungary.

Euroventures

Websitehttp://www.euroventures.hu/en
The total number of investments: 20
A venture fund was established in 1989 and since then, it has realised 5 investment programs (with a total sum of €180 million). It invested in projects from different industries: from dairy production to med-tech, big data and IoT. In the fund’s top-list there are Rising Stack (Software development), Bankmonitor (a service for comparing bank products), Tresorit (a software for data protection), OrthoSera (regenerative medicine).

Lead Ventures

Websitehttps://leadventures.eu/
The total number of investments: 4
A young venture fund (functions from 2019) which invests in projects from such industries as energetics, mobile app dev, sustainable development, retail and IoT. It invests from €2 to €10 million. The fund manages €100 million. Among the investor’s top-projects, there are Codecool (programming courses) and Neticle (a service for text segmentation analysis), Neuron Soundware ( an AI-solution which analyzes sounds made by vehicles and devices, for distinguishing the type of crashing).

X-Ventures

Websitehttps://www.x-ventures.hu/en
The total number of investments: 21
An Early-stage venture investor that manages 3 funds: X-Ventures Alpha (the capital — 4 billion of Hungarian forints, equivalent to €11 million), X-Ventures Beta (the capital — 4,3 billion of Hungarian forints or €12 million), X-Ventures Gamma (the capital — 13 billion of Hungarian forints or €36 million). The fund invested in startups from IT, biotechnology, healthcare, logistics and electronics. The project’s top-list: ChatBoss (a manager for social media dialogues), AerinX (a technology for aero-inspection).

BNL Growth Partners

Websitehttp://bnlgrowth.com/
The total number of investments: 5
A venture fund that specializes in investing in fintech projects. It was founded in 2015. It has invested in such projects as Codecool, Scolvo (a service for sales managersс) and be-novative (a platform for generating ideas).

PortfoLion

Websitehttps://www.portfolion.hu
The total number of investments: 34
A venture fund that was founded in 2010. In different times, it managed 5 funds with capitalization from €3 million to €34,6 million. It invested in Codecool, Tresorit, Banzai Cloud (products for developers), Talk-a-Bot, Seon (a service for business, which evaluates the safety of transactions made and warns about fraud).

Talking about other investors, business investors cannot go unmentioned. Hungarian Business Angels Network — HunBAN unites about 100 individual investors. There are a few angel funds working in Hungary. The most famous are Day One Capital and Octogon VC.

Day One Capital is the first institutional fund in Hungary. It invests in startups at the early development stages. The key industries: internet, Software, mobile applications, medtech, cloud technologies, biotechnologies, user services. It was nominated as the investor of the year in Hungary in 2015, 2016, and 2018. It invested in Tresorit, Talk-a-Bot, AImotive.

Oktogon VC — an angel fund which works with startups from Central Europe, it accumulates €20 million. It was established in 2019. During this time, the fund has invested in 5 projects, and now, in fund’s portfolio, there are Recart (a tool for messenger marketing), Bitrice (a tool for developing mobile applications), Matsuko (3D holograms), BitNinja (provides Linux server security), Enduraid (planning diets for sportsmen).

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Conclusions

The startup ecosystem of Hungary was formed and achieved significant success in short terms. It was favoured by the EU as well as the government policy and initiatives from entrepreneurs and investors.

Hungary has all elements of the startup infrastructure: from incubators, accelerators, hubs and networkings to local venture funds and business angels communities. Noteworthy, successful startups are eager to share the experience with those who came into innovative entrepreneurship. A good example is Bridge Budapest — a program that was created by founders of several Hungarian unicorns.

Due to the insufficient size of the local market, Hungarian startups from the very beginning are considering how they will scale their product to the global market. Only a few projects are aimed at the local market.

A country has several venture funds as well as many business angels communities. On a first-priority basis, Hungarian startups use their money and money from friends, siblings or relatives to develop the project; only 25% of startups attract funds from venture investors.

16 Apr 2020

 

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