Propped up by the Government: The Recent Evolution of the Early-Stage Equity Finance Market in Hungary

Abstract

The development of institutions providing capital, technical assistance, mentoring and professional relationships to innovative businesses in the early stages of development and with high growth ambitions started with considerable delay in Hungary compared to countries with developed capital markets. This market is characterized by strong government domination as the establishment, operation and control of the business incubation institutions are largely carried out by the public administration. The survival of the dominance of the government that previously catalysed the growth of this sector now hampers the development of the start-up sector in Hungary as the natural selection of the market mechanism cannot prevail. The efficiency of the market is significantly hindered by the high rate of capital abundance and the pressure to invest, leading to less careful project selection. At the same time, among the recipients of these resources there are rent-seeking organizations as well as organizations actually promoting promising businesses.