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Financial Systems, Corporate Investment in Innovation, and Venture Capital

Edited by Anthony Bartzokas and Sunil Mani

This book examines the role of venture capital institutions in financing technology-based ventures both in developed and developing countries. It also explores that part of venture capital activity which is hitherto vastly under-researched; namely the ability of venture capital institutions to render a whole host of value-added support functions. These include setting up management teams and designing strategic plans for fledgling enterprises. The latter issue is operationalized through a series of carefully chosen case studies.
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Chapter 10: High-tech venture capital investment in a small transition country: the case of Hungary

László Szerb and Attila Varga


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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