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Business incubators: Getting started in Hungary for real

From the Budapest Business Journal print edition: The concept of business incubation went on a victory tour from Israel and Finland where governments realized that they needed to step in to help embryonic innovative ideas turn into global economic success. Hungary strives to become a regional startup giant by playing the same card. The recent award of Accredited Technology Incubator (ATI) titles could turn out to be the draft print of a bestselling story.

“Budapest aims to become the startup capital of the region and the government will play the catalyst role in this effort,” Zoltán Cséfalvay, state secretary of the Ministry for National Economy (NGM) said at a recent conference. A precondition for accomplishing that mission is to have a critical mass of startup enterprises and to identify comparative advantages. In terms of financing, the biggest problem to tackle is not necessarily raising money, but channeling funds to the right place.

In Hungary, venture capital worth HUF 133 billion is on the hunt for investments; however, it rarely finds its way to the early seed-funding phase of businesses, which is crucial for their development. In order to make up for the lack of that sort of financing, the government has come up with a business incubation program of its own.

Preparing for breakthrough
After a rigorous selection procedure by the National Innovation Office (NIH), four applicants were awarded the Accredited Technology Incubator (ATI) title. Winners gain access to a pool of funds of HUF 2.1 billion, from which HUF 1.860 billion goes directly to the startups selected for incubation, while the rest is used by the incubators themselves. Three of the awarded operators, ACME Labs Zrt, Digital Factory Zrt, and iCatapult Zrt, are in the ICT sector only. Aquincum Technológiai Inkubátor Zrt’s portfolio covers biotech and medtech on top of ICT.

“We are planning to incubate ten companies annually. What matters most is not the number of jobs created or the capital raised, but the how many of the startups supported by us will become a world success story,” Emese Maczucza, spokesperson of Central European Investment Services Tanácsadó Kft, speaking on behalf of Aquincum Technológiai Inkubátor Zrt, told the Budapest Business Journal.

So far the problem on the domestic startup scene has been that the Hungarian founders were involved in technology development only, and it was the foreign partners who dealt with the factors such as intellectual property rights issues and business development that are essential for a global breakthrough. “We are confident that the hands-on experience of the owners will allow a smooth kickstart for most of our target companies,” Maczucza added.

Incubate me one more time
Four may have won, but 14 others have lost in the race for accreditation. Yet, there are some who seem rather encouraged by failure. AVEC Accelerator Program, backed by three OTP Bank funds, has already started operation without state money. Even so, the first round losers will have a second chance soon. A new accreditation procedure is scheduled for the first quarter of 2014, where up to five or six new entities may gain access to the state money taps.

“The ATI title cannot be earned twice. But those incubators who have won may apply again for the resources meant for startups, as their long-term financing must be ensured,” László Korányi, acting chair of the National Innovation Office said to the BBJ.

Funding gives an overall hopeful impression in the mid-term. In the EU budget period of 2014-2020, around HUF 700 billion will be available for R&D and innovation, from which HUF 140 billion could reach the startup ecosystem. “Together with NGM we are planning that the technology incubation program itself could be assigned a total of HUF 35 billion in that period,” Korányi estimated.

Apparently money will meet minds, then. And as Rina Pridor, one of the masterminds behind the Israeli incubation program insisted: “The potential in Hungary is out there.” It is time to make use of it.

– Written by Levente Hörömpöli-Tóth