PRINT THIS PAGE The development of venture capital and private equity industry in Hungary 1989-200421/06/2006. Source: HVCA.
By outlining the definite processes apparent in the venture capital and private equity market, the survey allows for a better understanding of the development and characteristics of this unique asset class. As a result, it may facilitate the penetration of new capital sources into the Hungarian market, and may provide assistance to investors in creating a more successful market strategy. The development of the Hungarian venture capital and private equity industry may be divided into four phases. In the phases there were different key players, the participants had diverse professional expertise, typical transactions varied in the size and structure, and the investment proposals were of different origin.
The first phase lasted from the commencement of the change of regime until 1992. At that time besides global funds which invested foreign government capital, the Hungarian market was primarily dominated by country funds .The typical size of such country funds was around 50 million dollars, since at that time fund management companies had no significant investment experience in the Hungarian market and the market risk assessment reviews intimidated several key market players. On several occasions the realization of investment proposals was encumbered with a number of difficulties. A crucial proportion of the transactions were investment opportunities arising from the privatization process aimed mainly at industrial restructuring.
The second phase lasted from 1993 to 1997 and was predominantly characterized by the proliferation of regional funds .In addition smaller country funds were established, and a few sector funds also appeared in the market. Funds on the whole had grown in size compared to the earlier ones, and the typical sum of the capital managed increased to 100 -200 million dollars. Financing the expansion development stage of enterprises became prevalent. The consolidation of the Hungarian private equity market began.
The third phase - from 1998 to 2000 - was predominantly characterized by rapid expansion. In this period the dominance of regional funds prevailed, but at the same time investments focused on financing technology .The size of the capital managed by the funds in general continued to grow, reaching 250 -300 million dollars. In this period both major financial institutional investors, especially those successful in the region, and investors targeting all of Europe were present in the Hungarian private equity market. Besides financing the expansion stage of enterprises, the classic venture capital function emerged, that is investment in enterprises in their early development stage. The primary target areas of financing were technology, IT and media.
The fourth and last development stage - from 2001 to present day - is characterized by the streamlining - rationalization -of the market. Only successful fund management companies are able to survive in the market. In addition to regional and country funds, specialized investors began to emerge. Financing now encompasses buy-outs but continues to provide capital for enterprises in the expansion stage. As state-owned investors invest Hungarian budget sources, the significance of financing small and medium-sized enterprises has increased. As a result of market consolidation, several former market players ceased their activities, while following Hungary 's accession to the European Union new global investors appeared on the scene focusing primarily on high value buy-outs and structured transactions.
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The Hungarian Venture Capital and Private Equity Association (HVCA) represents virtually every major source of funds and expertise of private Equity in Hungary and is dedicated to promoting the venture capital and private equity industry for the benefit of funds, entrepreneurs, private Equity professionals and the economy as a whole.
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