Budapest as European Entrepreneurship Capital
11 September 2014

Budapest Under Scrutiny: Will It Dethrone Germany as Centre of European Entrepreneurship?

Last workshop of Startup Europe Roadshow is being held in Budapest. Find the agenda here.StartUpShow Grand Finale with the Vice-President of the European Commission Ms Neelie Kroes. Get your ticket here.

Budapest, pearl of the Danube, does no longer want to be known for its thermal baths only. Hungary’s capital is laying the foundations for attracting investors and start-ups away from Germany, and becoming the major hub in central Europe.

This is confirmed by the numerous events, incubators, accelerators, and venture capital investors already settled in the city. With them, numerous co-working spaces where young entrepreneurs struggle to develop their ideas. These projects aspire to become the next Prezi, Ustream or LogMeIn, hits that attracted business angels and foreign businessmen to the city of the Danube.

Such attraction has not gone unnoticed for the Hungarian government. Last April, the Ministry of Economy, the National Innovation Office, the working group BudapestHUB, and several professional organisations, set off Startup Spring, a series of events to connect entrepreneurs and investors. Moreover, Secretary of State Zoltán Cséfalvay has promised a set of measures to remove administrative and fiscal burdens.

These two examples reflect the will to make this city become the next European centre for entrepreneurship. So, what does Budapest have that other capital cities in the old continent do not?

Nora Vasony, co-founder of the co-working space i-Office, explains that “it is one of the most inspiring cities in Europe. It is also a virgin territory. One of my clients used to say that it was not saturated, that competition was not too high. There are opportunities that you can have access to at a rather low price. All this makes it an exposed space.”

“Budapest is cool and one of the cheapest European cities,” states Peter Langmar, CEO at Brickflow. This application is used to find photos and videos to publish on Tumblr and, according to Hungarian media, is one of the most promising start-ups in the city. “It is as Berlin used to be a decade ago: ‘poor but sexy’.”

A cheap, inspiring, and full-of-talent European capital. Maths and physics are the best taught programmes in the country, generating a display of quite good developers. Balazs Varro, member of Ustream.tv team, explains that “in Hungary there are many motivated and well educated professionals. The country in itself is a good place for businesses, for its geographic location as well as for its mentality.”

Foreign money, national startup

Not everything is facilities. On its way to becoming the next European hub, Budapest —and Hungary in general—, will have to overcome a series of obstacles. According to Vasony, small Hungarian companies face two problems; one related to the impossibility of a startup employing more people (due to legal burdens), and the second related to the complex bureaucracy.

“You frequently have to be accompanied by an advisor in order to understand the paperwork, because rules are quite complicated.” This situation contrasts with the most important European hub: “I have lived in the UK and it is fairly easy to register. You can do it yourself on the Internet. In Hungary it is not that easy”.

However funding, the classic nightmare of many startups, does not imply such an important challenge for small companies in Budapest. According to European Commission (EC) data, Hungary leads the ranking of countries with greatest venture capital investments in relation to its GDP, before Sweden, Ireland, and Estonia. These investments are partly due to the JEREMIE (Joint European Resources for Micro o Medium Enterprises) programme, an initiative by the EC that grants loans from public and private capital.

Although this support is basic, in Budapest you have other ways to attract money. In only two years, Brickflow has gone through crowdfunding and a round of funding of 240,000 Euros from German, British and Estonian, as well as Hungarian investors. This foreign investment is the one that raises indigenous ideas and that, according to entrepreneurs, is the key for a successful idea.

“Honestly, you have to attract funds at an international level in order to find the best investors for your business,” as highlighted by Brickflow CEO. This idea is shared by Balazs Vedres, founder of Gravitalent, a startup that develops games for workers’ selection processes and that last year attracted capital from an Italian accelerator.

“We have discovered that the startups ecosystem is funded more by other countries than by the country itself. Startups begin very fast, thanks to the US market audience, and the ones who have been successful have settled in there quickly.”

Budapest, Tech City?

Ustream is precisely one of the successful cases that attracted US funds. The live streaming platform was launched in 2007 when its founders realised the need to follow events in real time during their stay in West Point US military academy.

Receiving foreign funds did not make them lose their roots. As explained by Balazs Varro, “the initial idea was to set up the company in San Francisco and Budapest,” instead of just settling in the US. Establishing a startup’s central office in the Hungarian capital is a perfectly reasonable option. “We have many good companies growing and the ecosystem is perfect to create more.”

According to the list of startups on Startbudapest, a high percentage of them are related with technological projects. Moreover, there are events of the sector such as the International Geek-together or the New Tech Meetup; accelerators such as Colabs or iCatapult; and pages such as Silicon Goulash, who provide information on technological startups in Hungary. An entrepreneurial environment in the style of Silicon Valley and Tel Aviv.

Could Budapest become a tech city? “It has enough people to do so,” asserts Vedres. For now, the aim of the city is simple: to become the land of opportunities in the old continent and the queen of central Europe. It is on the right track.