In Hungary, the innovation ecosystem is being revitalized through strategic national initiatives aimed at bolstering innovative enterprises. This article highlights the important role of targeted incentives and market-based venture capital.
The primary objective of Hungary’s innovation policy is to enhance the international competitiveness of Hungarian-owned enterprises. Key strategies include the introduction of an innovation voucher scheme to provide businesses access to top-tier advisory services, expanding tax policy support to boost RDI activities, and developing a comprehensive funding portfolio that includes loan leasing, venture capital programs, and guarantee products to replace non-reimbursable grants.
Hungarian-owned firms now account for 58 percent of Hungary’s GDP, with multinationals producing 42 percent. Multinationals account for around 80 percent of the exports as a share of GDP. Hungary’s business innovation rate stands at 32.7%, well below the EU average. The EU Structural Fund financed GINOP Plus program aims to support small and medium-sized enterprises (SMEs) to address these challenges.
Another financial instrument, the support for Focal Area Innovation projects is an effective way to ensure that more successful Hungarian innovations can be launched on domestic and foreign markets. The programme focuses on innovation investments on 4 areas (digitalisation, healthy living, green transition, safety and security) and sets strong economic KPIs for innovation grants (development of new technologies, products and services, patent protection and revenue generation).
The purpose of the Fast Track Programme is to help early-stage Hungarian start-ups to reach high TRL levels and eventually enter international markets, to maintain their domestic presence and even increase their competitiveness despite market and regulatory challenges. The fast track programme is funded by the Hungarian innovation fund. The primary goal of this scheme is to support startup and spin-off companies that primarily, but not exclusively, aim to commercialize research results originating from higher education institutions and publicly funded research institutes. These companies still require significant research and development activities to bring their products to market.
To foster early-stage innovators and start-ups, especially in deep-tech and high-impact sectors, measures such as “smart money” — venture capital that provides financial support along with mentorship and networking opportunities — and a shift towards market-based funding are proposed. This strategy, inspired by models from Israel, the US, and Singapore, emphasizes the importance of technological incubators, venture capital and market-based financing.
Role of the Hungarian Innovation Agency (NIA)
The Hungarian Innovation Agency (NIA), established in 2021, plays a crucial role in this ecosystem by supporting start-ups and innovative enterprises from youth education to international market entry. NIA also develops talents through programs like the Hungarian Startup University Programme and facilitates international collaborations via Horizon Europe, Interreg and other initiatives.
Early-stage financing is particularly important, as structural analysis shows a low share of early-stage investments due to high transaction costs, supply constraints, and inadequate infrastructure. The GINOP-8.1.3/A-16 venture capital fund addresses these gaps by providing finance to companies that struggle to obtain it through traditional means.
Creating a competitive regulatory environment by adopting international best regulatory practices, such as the Austrian FlexCo model, is vital. Initiatives like the National Bank of Hungary’s Innovation Hub and Regulatory Sandbox also promote fintech innovations, further supporting the innovation ecosystem. Based on stakeholders’ recommendation, the Ministry for Innovation and Culture has initiated the legal implementation of the Convertible Note scheme, early 2024. The first results regarding the use of this tool are already promising.
Key recommendations for enhancing the innovation ecosystem include providing upfront financial (co-investment) backing to startups, simplifying bureaucratic processes, facilitating early-stage investments by connecting startups with business angels and mentors, and creating a supportive regulatory environment for entrepreneurial ventures. A redesign of the administrative processes related to the combined and concessional loans and other financial instruments is also recommended.
The FI4INN project emphasizes the importance of shifting from grant-based to market-based funding to support innovative businesses. By implementing these strategic initiatives and financial instruments, Hungary aims to create a dynamic and competitive innovation ecosystem. A local stakeholder meeting on May 24, 2024, highlighted the need for continuous monitoring and small, impactful changes to avoid reinventing financial schemes. Defining clear target groups for financial instruments and increasing the expected RDI content during maintenance periods are crucial steps forward.
By embracing these strategies, Hungary can significantly enhance its innovation ecosystem, driving growth and international competitiveness for its enterprises.