After 16 years under Orbán, Hungary’s startups are poised to bounce back

0:00Csongor Biás:Welcome to Path Founders with me, Mike Butcher. We cover the code, the capital and the consequences around the tech startup ecosystem. You're joining us on a historic day. Hungarian Prime Minister Viktor Orban has conceded defeat after 16 years in power with the opposition securing a landslide election win. Peter Magar, a former Orban ally who became his fiercest critic, swept to victory, promising closer ties to the EU. Magar's party, Tiza, is set to win a massive majority in Parliament in an astonishing achievement. But what does this all mean for business, entrepreneurs and the tech startup industry in Hungary?

0:45Csongor Biás:Joining me now are two keen observers of that. Ferenc Hussar, who is the founder of Reasonable. He's also the professor of machine learning at the University of Cambridge and is a former data scientist with Balderton Capital in London. Also joining is Chongor Biash, who's the managing director of Startup Hungary, which is an independent entrepreneur led organization launched to supercharge the startup community in Hungary. Now, thank you so much for joining PathFounders, gentlemen.

1:16Ferenc Huszár:Thank you for the invitation. Thanks for having us.

1:18Csongor Biás:Well, it's hard to know where to start, but what I wanted to do with you is if we could just go over what happened in the last 16 years. What did Auburn do to Hungary over the last 16 years, first of all? And obviously, second of all, it would be so interesting. Obviously, we want to get into what's happened in the startup industry. But first of all, let's hear your personal impressions of where you've come from over the last 16 years and what's happened in the country. Perhaps if I could speak to you first, Csonga.

1:54Ferenc Huszár:Yeah, sure. So I think 16 years ago, Hungary was quite a foster child of Europe. Before that, when we joined the European Union, Hungary had a big promise. And it was also true for the startup scene. You know, in the Central Eastern European startup scene, I think Hungary was kind of in this pioneering position. We had really cool breakout companies like Prezi, Logmin, Ustream, that were kind of the first from the region to do this cross-Atlantic way of operating. They opened up headquarters in San Francisco in the US, while keeping a large part of the development in Hungary. They raised from top tier international VCs.

2:34Ferenc Huszár:I think back then we only had like six unicorns in the region. One of that was Logmin after their IPO. But soon things started to go pretty bad. I think the reputation of the country has deteriorated quite a lot. And I think one of the biggest, you know, sin of the regime and the biggest damage that they made is kind of the mindset that impacted the whole society and was very damaging for the startup scene as well, largely because of the level of corruption has seen unprecedented levels. And, you know, it really changed, I think, the kind of mindset that people nowadays can't really believe that success is a result of achievement and hard work, but rather positioning and loyalty to the system.

3:35Ferenc Huszár:And I think for the merit-based startup scene, it's a big, big problem. And hopefully it's going to be too much.

3:40Csongor Biás:Right. Okay. Yes. So obviously it's been widely reported that Orbán did create an atmosphere where really you had to be close to the government to get on. Ferenc, give us your impressions and what are you feeling like today?

3:57Ferenc Huszár:Yeah, I mean, I certainly feel very different from how I felt about Hungary for quite some time. It's really like, you know, people smile at you on the street a lot more than they usually like. Us Hungarians, you know, this is the biggest smile that's going to crack on my face, basically, is how I describe ourselves. But yeah, I think Chongor's description of a missed opportunity for the startup ecosystem, I think, is a good one. I also felt that optimism, I actually moved to the UK about 15 years ago in 2009. So I've been sort of watching what's been happening from there, obviously visiting family and spending quite a bit of time back here.

4:45Ferenc Huszár:And I think, yeah, things have started out pretty interestingly back then in the early 2010s. And then many, many things over this like long rule of the of the previous government have basically meant that talented people, a lot of them have left the country. And not only did they leave the country, it was very difficult to lure them back or for them to even move back, even if they they wanted to. A lot of people just didn't find that very appealing, a very appealing proposition. So that's definitely one thing for the startup ecosystem. And then the second thing is, you know, the education system that hasn't really been upgraded for this last 15 years.

5:27Ferenc Huszár:The way we socialize people is for them to be risk avoiding, is for them to be certainly not entrepreneurial. And I think you can really kind of feel that. And I think the combination of these two things is that the smart entrepreneurial people leaving the country versus large part of the society not being entrepreneurial in the first place, you know, leaves us in a very difficult position when we want to recruit early employees to startups, for example. It's not impossible, obviously. We're doing it, but it's not been a great story for startups, I think.

6:05Csongor Biás:Yes, and John Gura, before we came on air, I think you mentioned to me that a founder of a startup, a large company, Colossian, was considering moving locations if Orban had won.

6:20Ferenc Huszár:Yeah, actually, I just talked with Dominique, the founder. Colossin is a Series A startup. Two years ago, they raised 22 million Series A from Lake Star. And he just mentioned to me today that him and many other funders actually were considering to open up an office in Vienna, not because of growth, but because for survival. Many of their employees actually decided and already told to the funders that they are planning to relocate if FIDA stays on. So, yeah, that's pretty sad. And luckily, it's not the situation now.

6:55Csongor Biás:Well, presumably he's considering staying, thank God, perhaps. I mean, Ferenc, you've obviously been an observer internationally. Did you get a feeling that the international reputation of Hungary had suffered as well?

7:12Ferenc Huszár:I certainly felt it personally that, you know, I think I tell this anecdote that when I moved to the UK first or when I started talking to my international colleagues, Hungary was associated with, you know, smart mathematicians, smart physicists. You know, people are very good at these kinds of things and they would list names of mathematicians. And over the years, it has basically this association moved over from smart mathematicians to the political situation in the country. So certainly observing yesterday, being on Twitter, maybe a little bit too much for my health benefits, a lot more people care about and passionately care about what's going on in Hungary than you would ever think people will care about a country of this size.

7:59Ferenc Huszár:You know, Americans are tweeting very passionately either way that this is, you know, this is a big deal. So certainly Hungary has been in the press a lot. And most of the time it's been mentioned in the context of politics. I think that's certainly something that I felt personally.

8:18Csongor Biás:And Czonga, I think on that international subject, I noticed that Hungary was the only country not to sign the European startup. Startup Nation Standard Alliance agreement. And that was based on something. Do you want to tell us about it? Yeah, that's right.

8:41Ferenc Huszár:Yeah, that's pretty embarrassing to talk about this. But you know, the ESNA proposal for European Startup Nation standards was listing different standards like around regulations around ESOP, regulations around company formation and other stuff that are useful startup but then were one suggestion out of the seven which was about gender diversity and inclusiveness and the hungarian government was the only eu nation that decided to not sign because they wanted to have the gender part and the diversity closure removed which was pretty symbolic and i think it's not happening the reputation of the country Obviously, when we want to attract international talent, female engineers, diverse people into companies, it's not a good sign.

9:32Ferenc Huszár:I think Prezi back then, 15 years ago, they were quite successful in relocating expats to Hungary. I don't know if you remember, Mike, I think we met first time in Budapest 15 years ago when Prezi was hosting this MLogJS conference. and you could already almost feel like you are in a Western European, Bay Area kind of conference with those things and I think it was harder and harder to achieve after that. And some of the companies, I think, you know, some companies are doing pretty well. Shaper 3D, for example, has 30 % of expat funders, but they continuously complain that it's harder to harder to convince international talent to relocate to Hungary because of political reasons and because of such political statements.

10:16Ferenc Huszár:One interesting fact that I wanted to comment on, if I may just jump in, is the diversity issue. Is that despite the kind of government stance and public rhetoric about diversity and gender, actually Hungary and Eastern Bloc countries, like former Soviet-influenced countries in general, do pretty well in terms of gender diversity in STEM subjects, for example, in mathematics and engineering. I think that's something that we have as a benefit or something that has been true. There is actually papers about it. I don't know the reference on top of my head, but people have actually measured this out.

11:00Ferenc Huszár:And there's some like particular reason why this happened in these ex-Soviet countries or ex-Soviet influenced countries. And yeah, so I think you would recognize this in any of the neighboring countries as well. So it's not like the country is hostile at all to diverse talent. In fact, I think we are doing pretty well in reasonable that I think in the Budapest office, we have a 50-50 gender split right now. and it doesn't seem to be particularly kind of difficult to find diverse talent. Yeah, yeah, yeah.

11:35Csongor Biás:I mean, I concur that Central and Eastern Europe have generally, in my experience, actually gone beyond the levels of diversity, especially gender diversity, seen in Western companies, actually. So I concur with you there. But it was obviously quite ironic and strange the way that Hungary behaved under Orbán in the sense that it would have sort of half into Europe and half out of Europe, on half criticising and castigating the EU. And at the same time, obviously, he was attempting to get as much EU funding as possible and blocking or applying for all sorts of funding. And in fact, CNN did a report recently on a roundabout that went nowhere for some project that he'd managed to get funding for.

12:33Csongor Biás:But Hungary also ranked last in the EU on the Corruption Perception Index for four consecutive years. So, and just going back to that issue about, say, government programs, Csangor, I know that you had some views about whether government programs that had been run under this regime, if you want to call it that, hadn't actually produced any really significant companies.

12:59Ferenc Huszár:Yeah, the Hungarian fundraising scene has been dominated by various governmental and EU funding schemes and programs from the Jeremy programs to a governmental fund that kind of spray and spray the whole market called high ventures to different state incubators and some of these were bad intentions and corrupt especially in the beginning some of them were launched i think with good intention and i don't suspect any corruption but even those were disfunctioning and rather caused more harm and more noise in the ecosystem and good. You know, all this kind of money came with a lot of strings attached, bureaucratic overhead, weird standards, they often broke cap tables.

13:44Ferenc Huszár:And naturally, they attracted the not so not the best quality startups, because actually the best quality startups were able to raise from market based VCs, international VCs. So naturally, they attracted the lower quality standard, lower quality startups, But because they had a mandate to do a lot of deal numbers, and actually their only key PI was to do a certain big amount of deal numbers, they kind of created this noise and wrong incentives in the ecosystem. And definitely we have a lot of kind of fake startups, almost like sometimes they call them grand entrepreneurs. And it kind of created a lot of noise and a lot of distraction in the ecosystem and almost kind of created this parallel universe of startups.

14:32Csongor Biás:I see. Yeah, so that's obviously something to look at. But certainly it would be very interesting to see if this change in government under Peter Magar will produce a more stable environment for inward investment, for international investment and also for talent. But obviously, you've been through such a tumultuous period. Looking forward to the future, Ferenc, what's your opinion and views about where Hungary is going to move now? Are you optimistic? Obviously, it's a bit untested about whether or not what kinds of policies will be enacted, and what kinds of politics will emerge over the next few years.

15:19Csongor Biás:And obviously, Victor Orban is obviously still actually quite powerful, having control over large swathes of the media, for instance. But what are your views about going forward and looking to the future?

15:31Ferenc Huszár:Yeah, so just for context, so I run a company that's a British company that has an office in Budapest, which is for tech development. And we actually opened this Budapest office before the election outcome was very clear. So I think we kind of committed to the local talent pool, even without whatever we are hoping from what's going on, like positive outcomes from the election. But I do actually feel that a lot of positive things can happen. So we mentioned those very smart individuals who left the country. And if they now feel that change is possible and for them, you know, they are now welcome back and they can actually, you know, start kind of relocating.

16:18Ferenc Huszár:Or even maybe those foreigners who are not born in Budapest but would like to experience the city, which is actually pretty amazing to live in and, you know, very beautiful and very high quality. Life is possible here. and relatively affordably. So I actually do think that the talent pool is going to grow very significantly because experts are returning and because it's going to be an easier sell to foreigners or obviously who are not Hungarian to sell the proposition of them moving to Budapest. So that's one thing. Second thing in terms of like all of these government programs or company friendliness, I actually don't like to rely on the local governments for any sort of funding or any kind of grant programs.

17:05Ferenc Huszár:I don't think that kind of, you know, that doesn't usually do very good for like market driven startups. But that said, I think one of the positive things in the new incoming government is that several of the recruits of the new representatives have experience abroad and have experience, for example, with tech companies. So some of the people that they managed to recruit have worked at companies like Meta before in various kinds of positions. So I think they bring in a kind of experience that the previous government, which was very, very like inward looking and Hungary focused, hasn't really had.

17:43Ferenc Huszár:So I think I feel that if you want to, for example, make a case for things like the EU Inc. initiative or something like that, like you can probably make that case. Oh, yes. Nice. Nice hat, Chongor. yeah so so you can probably have those conversations i i felt previously that it would be completely pointless or impossible for me to engage anyone in the previous government about these kinds of initiatives it's just like we don't speak the same language um and so on and you you just don't want to touch it and i think that's maybe something that's a good thing is that if for our company there is something that we actually think the government locally should not do or should do, then I think a meaningful conversation might be possible in the future.

18:28Ferenc Huszár:And I think that's another positive change. But I think, yeah, talent is the biggest one, you know, and, you know, I'm going to shamelessly plug our company. We are the coolest deep tech company in town right now. So if you actually want to work on frontier tech, you know, get in touch. Now is a good time to...

18:46Csongor Biás:Well, I think that probably deserves a separate Path Founders podcast at some stage for sure. But Chongor, you were also telling me that your perception was that the way that Peter Magar run his campaign was almost like a startup because I think he was more or less unknown a couple of years ago. And do you get that feeling that this new government is going to be entrepreneur friendly? And I suppose it's really from a new generation, isn't it?

19:14Ferenc Huszár:Yeah, actually, Peter Magyar sometimes referred to the Tisa party as a garage company, as a startup. You know, they started two years ago. Actually, they became a party like one year ago. And, you know, through recruiting the experts with international experience, through hard work and grit, they managed to beat a 16-year-old incumbent. So it's like a startup story that can give back confidence to people and I think it's hugely important. And one of the example of this recruits with international experiences is István Kapitán, who was a former global executive at Shell and he had one of the most memorable quote in the campaign, at least for me.

20:01Ferenc Huszár:He said, we want more unicorns and not zebras. For For those who don't understand the zebra reference, I think it became one of the most memorable, largest symbol of the campaign. One of Orbán Viktor's childhood friend and oligarch had basically a private zoo next to Orbán's family, a little menor, and it was filled with zebras. That's where the reference is coming from. that's crazy that's crazy well more unicorns and zebras that's absolutely definitely

20:40Csongor Biás:something to be hoped for finally any last thoughts friends what's your what's your view

20:47Ferenc Huszár:about where things go from here quickly yeah I mean it's anybody's guess I'm very very hopeful that things are going to go in a in a good direction and I think that you know what I would love the most is if the new government would just welcome the people who were alienated by the previous government back to the country, either relocating or at least just engaging positively with the communities here. Philanthropists included, for example, in that. So, you know, our communities also need philanthropic funding for a bunch of programs. Those philanthropic, initiatives have been alienated as well.

21:30Ferenc Huszár:So that's what I'm hoping is going to happen, like this lost opportunity that we didn't have in the last 10 years. Hopefully, it's not too late to rebuild some of that trust and some of that.

21:43Csongor Biás:Yes. And also international commentators are commenting that with Hungary more full-throated back in the EU, it will have ramifications for the backing of Ukraine and defense industries. And it'll be very interesting to see what happens. Any final thoughts, Chonga?

22:03Ferenc Huszár:Yeah, I think, you know, despite the past 15 years felt like an uphill battle, I think there are definitely promising signals. We see this kind of flywheel effect slowly taking off. We see, you know, experienced funders like Ferenc coming back and starting a company here. We see some repeat funders starting new companies. We see more and more international VCs keeping Hungary on the radar, looking at this not just after Series A, but even at the preceded stages. So there is a lot to be hopeful for and it's time to build. It's good to be back in Europe.