So far, it has invested HUF 50 billion in the Hungarian economy, which, taking into account its launch in 2017, means a monthly investment of nearly HUF 1 billion. This has made it the most active and experienced early-stage institutional investor in Europe in a relatively short period of time and, with more than HUF 155 billion of capital behind it, it has developed a capital financing portfolio that now covers the entire entrepreneurial lifecycle, enabling it to make investments of unprecedented scale.
We discussed this journey and future plans with Bence Katona, CEO of Hiventures.
The economic situation changed in the wake of the pandemic, upsetting the previous business model for most market players. How has it affected the operation of Hiventures?
Venture capital has a key role to play in guiding businesses with high growth potential through difficulties and into a more mature stage of life. The need to catalyse business development has perhaps never been greater. As state actor, we feel obliged to make up for the lack of players and to provide higher risk investments to replace the risk appetite of the existing ones. Last year, we launched our InvestPRO business for large corporates, and provided a fast and effective solution with our emergency rescue packages for start-ups and SMEs, which we complemented with a crisis product for large corporates by the end of the year. Our bailout investments have mobilised significant funds, saving previously thriving businesses from bankruptcy or even foreign ownership. Of course, our standard investment programmes also continued to operate without interruption, with record (volumes of ) funding in 2020 compared to previous years.
Do you have data on the impact on the Hungarian economy of Hiventures’ entry and the fact that you offer financing, from startups to large corporates?
Until the mid-2010s, Hungary was at the bottom of the European league in terms of venture capital, and the upturn, which also saw the development of a start-up ecosystem, was really felt after 2017. We played a key role in this, and at that time we were the only player providing state capital in the Hungarian market. In the year we launched, we provided nearly HUF 8 billion in funding to Hungarian startups and because venture capital goes hand in hand with market-based R&D, innovation and economic growth based on advanced technologies, we have become both a representative and a leading supporter of these values.
Because of its economic importance, the SME sector is at the heart of targeted economic development programmes. It accounts for 71% of business employment, 47% of added value and 20% of exports. Many sources of financing are available to fund their activities but, so far, loans from domestic financial institutions and non-repayable grants with EU support have typically played a major role. When we launched our KKVPRO business in 2019, we made it a priority to ensure that capital was available for development, including in the form of complementing their own resources, to increase SMEs’ ability to access additional credit.
According to recent HVCA data, between 2017 and 2020, since our inception, there has been approximately EUR 470 million of venture capital investment in Hungary, of which Hiventures’ investments represent 25% at current exchange rates. Of the 745 investments made since 2017, Hiventures has been involved in 326 companies, almost half of the disbursements. Business development is a multidimensional stimulus for the national economy, but the actual and meaningful effects of venture capital investments are felt later, at least 3-5 years down the line.
In addition to its increasingly diversified portfolio, Hiventures now includes 370 startups. Are there still untapped opportunities in the management of start-up companies?
Many of our start-ups came to us with an idea, and soon they will have billions in revenue. Our aim is to achieve and finance as much growth as possible, counting on the collaboration of the market and co-investors. The number of co-investors speaks for itself: Since 2017, we have collaborated with co-investors in 77 cases, worth HUF 6.5 billion. While we want to expand this further, we are also working hard to share these successes with the market. We are putting together a premium portfolio that we hope will appeal to a wider range of market participants and investors.
Beyond the start-up plans, is it possible to tell us anything about further ambitions for 2022?
We believe that state involvement will be needed for some time. New ideas, and the businesses, niche innovations and digital services that build on them, can count on our support in 2022. We are also working to make ourselves better known to SMEs and large companies, because together we can open doors to development that would remain just a plan without capital funding. At present, we offer them a unique mezzanine capital investment solution in Hungary, of up to several billion forints. As a hybrid instrument, it combines elements of debt and equity to optimise the capital structure. We will continue to strive to make the best possible investment decisions, offer flexible financing solutions and develop strategic collaborations that will be a step forward for our portfolio companies and the Hungarian economy as a whole.