Hiventures Venture Capital Fund Management manages assets worth HUF 102.5 billion and is one of the biggest venture-capital investors in Central and Eastern Europe. They assumer the risks and finance the complete life cycles of startups, primarily, from the concept phase all the way up to international expansion. They have upgraded this year and shifted their primary focus onto chronically undercapitalised Hungarian small- and medium-sized enterprises as well as the stock exchange.
- We have no shortage of applications: between 800 and 1,000 startups apply for our programmes every year. Our latest data, from July, show that nearly 300 Hungarian startups have received a total of HUF 19.6 billion in venture capital since the start of Hiventures, a company of the MFB Group, since its start in 2017. What is the key to their success?
- The reason is that innovative companies in their early growth phases had trouble raising capital because they were too risky for banks and were also often left out from tenders. This was the segment where the Hungarian Development Bank (in Hungarian: MFB) came onto the scene three years ago and took up the role of developing the market. At the start, Hiventures funded the startup investments from a fund to which MFB added HUF 20 billion and the EU added HUF 30 billion. Nowadays, our total funding budget including SME-financing is HUF 102.5 billion.
- What big projects does Hiventures have this year?
- This year our focus will be expressly on expanding our target group to include traditional small and medium-sized enterprises. We are launching our new SME division with a HUF 31 billion budget. This is in response to market needs, because although SMEs are the backbone of the Hungarian economy, they need capital financing, just like startups do. Many of them are struggling, for example, with intergenerational succession, a difficult challenge that many small- and medium-sized enterprise established at the time of the regime change cannot overcome. In part this was because external financing was not available on the market before we started implementing our funding transactions. We believe that it’s important to support consolidation transactions in the SME sector, because the current volume of the mergers and acquisitions that could result in efficient company sizes is low. Our new capital fund seeks to encourage SMEs to enter international markets through outward foreign direct investments. One effective way of doing that is through the acquisition of foreign competitors, and we can finance that as well. Because of all this, we decided it was time to launch a capital programme focusing on this area. So far, it’s been running as a pilot project, but we can see tremendous interest in this initiative. Besides the SME capital fund, we are also considering setting up other industry-specific funds as well. We’ll give more priority to the innovations in the fashion and design industry from October, and a new fund will offer a HUF 5 billion budget to companies in this industry.
- At first glance, SMEs and venture capital investment seem to be two completely different worlds. Aren’t first-generation founders afraid of outsiders buying their company?
- Keeping Hungarian small- and medium-sized enterprises in Hungarian ownership is important to us, which is why we offer closed transactions. Accordingly, we request a minority share for increasing their capital, and the other owners will later have the chance to buy back the share our fund acquires this way at a fixed interest rate. We expect an annual yield of around 10% for our capital injection, which might seem more expensive than the current loan interest rates; banks, however, only provide funds if they get a collateral. Our collateral is the business share, which is much more risky for us. We must emphasise that we do not want to compete with banks, but want to offer an auxiliary solution that can lead to a successful transaction if combined with bank loans and own resources. We are interested in supplementary financing, and our funds can be spent on development projects as well.
- Your 2020 calendar must already be full because of this SME project. Does Hiventures have any other plans?
- Yes, indeed we would like to close our first successful SME transaction next year while we continue to finance the Hungarian startup ecosystem and further expand our portfolio. But we won’t stop there, we’ve also set our sights on the stock exchange. We would like to see the best-performing companies in our portfolio appear on the Xtend market of the Budapest Stock Exchange. This would be a response to a market need: in our experience, big companies and retail investors want to get more involved in the promising development of startups.