Venture Capital Investment -Hungary -

The role of venture capital in the world of finance is to invest into a riskier business, company, which is not listed on the stock exchange, as a participation investment, with a role in the management, for a longer term in the different stages of companies in order to gain growth in the company value and later sell one part of the capital.It is more common in the high-tech industry because of the high expected growth rate.

According to the experiences of the German entrepreneur in this market, who is willing to set up a venture capital company in Hungary, it is obvious to enter to the venture capital market instead of the private equity one. The venture capital is mainly participating in the early stage and development financing when new ideas, technologies are supported or further capital is needed to ensure the continuous improvement.

The selection, the investment, the additional financing and the exit are the main parts of the process of venture capital investments. More than 90% of the tenders are refused in the selection phase which indicates the high risk of the investments.

Hungary, as a New Member State of the European Union is situated in Central Europe. The country has a working market economy with all the economic, legal and institutional preconditions.
The high-tech industry has an ever growing role in the domestic industrial structure.

Further advantages of investment activities in Hungary like the regional hub role of the country towards Eastern Europe, the high level of education or the lowest corporation tax rates in Europe at 16% ensure the attractiveness of the country.

The country is also attractive for the venture capital investors because of the higher development of the target market and the lower number of liquidated companies. Last year 41 transactions were carried out at an invested amount of 108 Million Euro.According to the GDP proportional venture capital investments in Hungary, 0,1%, the country is one of the main centre of venture capital investments in the region.

The strength of the competitors in Hungary lies in their knowledge about the domestic market that is why Hungarian professionals and cooperation partners should be employed.
The Hungarian refinancing structure is similar to the German one.

Insurance companies are limited to invest into venture capital businesses but the modification of the current law is on the actual agenda. For the refinancing, combination of the domestic and foreign capital is advisable. As the field of activity focusing on the marketing strategy, product specialisation would be sufficient when the company is focusing only one activity but on more fields as the separate markets.
It ensures lower risk, higher number of possibilities and higher chance for good reputation within the sector.

In the third part useful advice is also given about the way to deal with Hungarian business partners. Going to another country and making business there need a lot of preparation also about the local customs and the way of negotiation as well. Cooperation with local partners is advisable. At the end of the third part additional critical points, opportunities are presented to help the German entrepreneur.