After two tough years, the Hungarian startup ecosystem may begin to recover this year. According to Petya Balogh, angel investor and CEO-founder of STRT Holding, 2024 could mark the beginning of a recovery for the domestic startup world after two difficult years. This recovery is more necessary than ever, as a thriving startup ecosystem contributes significantly to the overall competitiveness of the economy. Fortunately, there is no shortage of ideas.
◼︎ Startup World 2024
– How would you describe 2024 for startups and investments globally, in the United States, and in Europe?
– Hopefully, 2024 has seen us reach the bottom. In 2021-22, markets were overheated due to post-COVID economic stimulus packages, leading to a surge fueled by an abundance of capital, which was followed by a significant decline in 2023. In 2024, the downward correction continued, albeit at a slower pace, affecting the number of investments, the volume of capital deployed, and the number of exits. The correction was most noticeable in large-scale investments of tens or hundreds of millions of dollars and billion-dollar acquisitions. High inflation made borrowing expensive, companies became more cautious and postponed acquisitions, leading to fewer exits in global markets.
– Did these trends similarly affect the Hungarian market, or were there additional factors at play?
– Hungary experienced an even more brutal correction, mainly because, by the end of 2022, investment funds relying on state and EU capital had largely run out of money. There was barely any capital in the market, making 2023 an absolute low point. In Hungary, less than €7 per capita was invested in startups—an absurdly low amount. In Estonia, startups received more than 100 times this amount per capita, and even in India, three times as much was invested.
Compared to this, 2024 has already brought some improvement, although it is too early to quantify the extent. (The interview was recorded in mid-November.) Incubator programs have restarted, leading to more transactions in the very early stages. The capital market is showing signs of life, and new funds have emerged, but from an investor’s perspective, it was still a very slow year. Fortunately, the other side of the equation looks promising: there is an abundance of ideas and teams, with many exciting projects emerging and several strong ideas attracting investment. So, the real issue is not a lack of ideas but a shortage of capital in the market.
– Can we conclude that a country’s startup ecosystem cannot be independent of the overall state of its economy? If the economy struggles, startups won’t thrive either.
– That’s correct, but the dependency is actually two-way. On one hand, if a country faces economic difficulties—such as soaring inflation or delays in accessing EU funds—this negatively impacts the startup sector. Similarly, if investor confidence declines for any reason, it has an adverse effect.
On the other hand, a weak or underdeveloped startup ecosystem also harms a country’s competitiveness. Fewer skilled professionals with expertise in innovative technologies enter the job market, local success stories become rarer, and fewer new champions emerge from the country. Startups don’t just contribute to the economy through their own success; they also supply innovation, skilled professionals, and knowledge that feed into the mid-sized and large enterprise sector. If startups fail to generate innovation and talent, other businesses in the economy also become less innovative and competitive.
– As a private investor, how do you see the role of the state and state-funded capital in developing the startup ecosystem? We have seen some poor examples over the past decade…
– State involvement in itself is not inherently bad—it depends on how a given program is structured. Does it aim to collaborate with market players or compete against them? Is the approach cooperative or competitive? The much-debated Jeremie program from a few years ago fell into the latter category. The funds distributed through state-managed investment funds ended up competing with private capital and ultimately pushed it out of the sector. It provided startups with cheaper financing than private investors would have, ultimately damaging the market. It has also been demonstrated many times that the state is not necessarily the best custodian of startup investments, and it is generally unwise for it to take majority ownership.
At the same time, there are state programs that successfully stimulate the sector. Governments worldwide play a role in financing the startup sector, and if done well, they can be key market builders. In Hungary, the National Innovation Agency manages several programs aimed at encouraging private capital participation. It has achieved notable results recently by launching incubator programs and implementing legal amendments that have benefited the sector.
– How can Hungarian private capital be encouraged to see startup financing as a viable investment opportunity?
– It was interesting to observe that when the supply of cheap state and EU-backed capital dried up, private capital quickly reappeared in the market. Business angels, investing from private sources, started actively looking for opportunities. This is a positive sign. The state should use all available tools to encourage private investors in this sector.
One unique challenge in Hungary is the absence of pension funds, meaning there are fewer long-term household savings looking for investment opportunities, which reduces the amount of capital flowing into the stock market and startups. Tax policies could also be adjusted to make these investments more attractive—offering special incentives to funds that invest in startups, as is done in the UK. And, of course, success stories are needed—not just to inspire entrepreneurs but also to motivate investors.
– How much funding can a Hungarian startup typically secure from local investors? At what point do they need to look abroad?
– Unfortunately, angel investors in Hungary have relatively small budgets. Typically, they invest between HUF 5-10 million (€13,000-€26,000) up to HUF 20-40 million (€52,000-€104,000) per deal. Thanks to incubator programs, startups generally receive up to HUF 20-50 million (€52,000-€130,000) at most. However, pre-seed and seed investments beyond this range are extremely limited in Hungary.
This is problematic because such investments generally don’t travel far—each market must generate them domestically. Securing investments of several hundred million or one to two billion forints (€2.6 million-€5.2 million) from local sources is nearly impossible.
– Beyond the lack of capital, what else is missing for the Hungarian startup ecosystem to catch up with the rest of the world?
– Primarily, experience and entrepreneurial knowledge. There is a lack of literature, accumulated knowledge, and shared experience. Startup development is also an educational and leadership training challenge. This is why incubator programs and initiatives like the Hungarian Startup University Program, which educates thousands of students annually on launching businesses and innovation, are essential. STRT Holding is also actively involved in education—so far, we have trained over 3,000 executives.
In general, Hungarian business leaders do not invest enough in their own education and professional development.
– At least there’s no shortage of ideas. Based on your experience, what types of startups have the best chances of success from Hungary: B2B or B2C?
– Our own investments and industry statistics show that nearly half of all investments go into B2B, software-based services—startups developing software solutions for other businesses. Strong sectors in Hungary include medical, agricultural, HR, and educational technologies.
Interestingly, but not surprisingly, 40% of startups receiving funding this year are developing AI-based products or services, where AI is not just an add-on but a fundamental part of the value creation process.
If we were to outline the recipe for success, it would look like this: target business users instead of consumers, leverage sectoral expertise where Hungary is strong (e.g., medical or agricultural knowledge), and integrate AI into value creation.
– Looking ahead to 2025, what gives you optimism?
– 2023 and 2024 were great years to be an investor in Hungary because there were more good ideas and startups than investors to support them, allowing investors to secure good positions at lower valuations.
However, I expect the market to stabilize in 2025, both globally and in Hungary. Domestically, there is little room for further decline, so I am optimistic about a cautious rebound in the startup and venture capital markets. I truly hope that 2025 will be a positive year in many ways.
