Edited by Anthony Bartzokas and Sunil Mani
Chapter 10: High-tech venture capital investment in a small transition country: the case of Hungary
László Szerb and Attila Varga INTRODUCTION Hungary started to change its economic system from a planned economy to a market economy in the late 1980s. In the ﬁrst years of transition, GDP declined by around 20 per cent, unemployment increased from zero to 15 per cent, and inﬂation began to rise. At the same time economic restructuring started and liberalization also helped to encourage entrepreneurship. Since the beginning of the transition, one of the major problems of small and start-up businesses has been the lack of ﬁnancial resources. While the government promoted new business creation in the early years of transformation, this support had disappeared by 1995. At the same time, the ﬁnancial system of Hungary began to improve by developing banking and credit institutions and stock markets. Since 1997 there has been a stable positive growth of the country amounting to a 5.2 per cent growth rate in 2000. This development was mainly due to large foreign companies well equipped with capital and management knowledge. At the same time, small business growth showed a declining trend that was turned around only in 1999–2000. Small business debt ﬁnancing has been improving for the last two years, however, equity ﬁnancing is still a problem. As one of the solutions to equity ﬁnancing, venture capital appeared ﬁrst in the country in the early 1990s, but played a minor role up to 1995. Despite higher than average political and economic risk, the small size of the country and limited income,...
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