Nora Szeles, Head of Business Development at Tokeportal.hu opened the event. She made the audience aware that the Hungarian equity-based crowdfunding market has just been born and therefore each participant, each tiny investment or contribution is just as much needed as that of large market players.
While 30 years ago the whole world was marvelled at the reopening of the first stock exchange in the region, the Hungarian Stock Exchange, as it was the symbol of market economy, now Hungary is almost the last in the region to establish crowdfunding. ‘Breaking the ground is tough’ she said. We have received both positive and negative feedback but we have really had lots of fun, and learned a lot, too.
Crowdfunding fullfills such additional functions on the capital market, which are requisite of regulated markets and big investors. Regulated markets do not offer early stage companies neither ensure easy access to capital for this asset class. Crowdfunding fills the gap in a company’s funding lifecycle and enables new capital to enter the economy, in line with the economic policy. In addition, if a company receive investment in an early phase and gets used to accountability, it will easier go for an IPO – imparted Nora the results of international research. It has also been already known since the Russian financial crisis that countries with more retail investors are more crisis resilient. She also told how difficult it was for the platform to launch its first campaigns just before the pandemic broke out. Some of the campaigns halted but several managed to restructure thei go-to-market strategy.
The other host of the event was Bechara Kara, who previously worked for the largest European platform and now mentors several startups that raise capital.
The keynote was held by Oliver Gajda, the Executive Director of the European Crowdfunding Network (ECN), who addressed the interconnectedness of crowdfunding and sustainable investments as well as the most interesting results of the ECN’s successful online conference on this topic.
ECN has nearly 80 European platform operator members, who all collaborate in order to develop and regulate the crowdfunding market. Although this market has a global history of only 10 years, it has been growing ever since: in 2017 the EU platforms measured a volume of 1.66 billion €. He also depicted the development of startup companies, early-phase companies and investors: the equity-based campaigns are getting more and more successful; the success rate is now above 80%.
Mr. Gajda also detailed the history of the upcoming European regulation, starting with the JOBS Act in the US in 2012 and which – recognizing that raising directly from the crowd provides a solution for the crisis – was the first act to abolish prospectus requirements for small investments and enabled anyone (not only accredited investors) to invest in such companies. Now, the European governing bodies support the development of crowdfunding, too. The European regulation, the EIB and the EIF do ground-breaking work in sustainable investments; the EIF even invests in crowdfunding platforms such as Lita.co and OnePlanetCrowd, participates in crowdfunding rounds with angel investors and invests in funds, which have a strategy of investing in crowdfunding campaigns.
The prospectus limit of EU companies is now EUR 1 million per year per project, but the new European Crowdfunding Regulation will lift this ban up to EUR 5 million pa. This implies a great opportunity to platform operators to scale. The billboard regulation will even enhance secondary trading of the previously crowdfunded companies.
Banu Tuyakbayeva, of Responsible-Investor.com explained the necessity of ESG investments. The previous assumption that ’sustainability’ or ESG equals with giving up effective yield, has been overwritten by the actual fact that such investments yield more on the long term, are more prudent and ethical. International regulators and institutional investors are emhasizing more and more on the importance of sustainability and responsible investments that do not exhaust the future. It has been proven, she said, that ’Investors turn their back to issuers that are affected by ESG incidents’.
Mechthild von Knobelsdorff was more specific on the importance abolishing the gender bias between male and female-founded companies. Highlighting the findings of international research that resulted that female-led startups perform better than male-founded ones, despite that only 3% of total investments enter such startups, she outlined that is is also proven that crowd funding is a great chance to women to fund their ventures, as this funding method is more democratic than private investments. According to research, female founders often find that they get other questions than their male peers, leading to a bias during the evaluation of the pitches. But fortunately, more and more market initiatives aim to reverse this asymmetry.
Assim Ishaque, UK based investor, entrepreneur and coach gave a detailed overview of his broad carreer from a multinational company to becoming an inventor, entrepreneur, investor and coach besides of his academic carreer. Specialized in innovative technologies, he encouraged all entrepreneurs to study thoroghly the theory of diffusion of innovation just as much as the product life cycle. ’It is very important to enter the market early and get the early adopters to use or to invest earlier that the product works at all, but the strategy shall focus on the entire lifecycle’ he said. Mr Ishaque introduced his wide knowledge in Clean tech and sustainable ventures business development, in which he also advised Hungarian projects, and offered to more and more Hungarian startups that plan to go crowd.
Paul G. Putz, MBA, founding partner of Danube Angels that was established in 2017, went into details about the operation of their Austrian crowdfunding platform aimed at investors, who invest in and support companies with pure equity with at least an EUR 1K ticket. Danube Angels conducts a few projects per year, also including green or sustainable ones. Mr. Putz outlined that he only believes in equity-based invesments, as he considers loans are not a suitable form of financing for young companies with ambitious growth plans. Since the Alternative Financing Act in 2015, there are 27 platforms operating in Austria, mostly offering subordinated loans, running successful campaigns that have already attracted approx. EUR 140M in the past 5 years. Mr. Putz happily advises Hungarian early and growth-stage companies aiming to raise capital.
Dr. Péter Szilágyi and Achilles Georgiu, Associate Professors at CEU introduced the innovation ecosystem of the university, the operation of the InnovationsLab incubator. The initiative that is often called iLab launched 4 years ago and has since become a global university incubator – considering the strong alumni network, too – in Austria, in the US and in Hungary. Their key phrases are knowledge, network, mentoring and community. Their results speak for themselves: 35 incubated teams form the alumni, with investments in the total value of 6 million € and creating 135 workplaces.
In 2019 they successfully catalysed the launch of several startups through their 2-weeks-long bootcamp, among which one startup has recently received invested from Impact Ventures. In 2021 they plan to organize a sector specific AI bootcamp as well as a programming bootcamp.
The onboarding program lasts for a year with 12-14 participating teams in a friendly environment meeting international standards: the teams are assigned to their own mentor, they are allowed to attend classes at the university and receive legal advice. University students can join the teams, too, many of them accomplishing the capstone Project at an incubated startup just like in the case of Tokeportal.hu. Mr. Georgiu mentioned how exciting it is to see a company growing from 2 members to a hundred members. Péter Szilágyi added that they have an open gate policy, which means that everyone has the chance to get to know them.
László Jobbágy CEO introduced the Digital Success Programme of Hungary. ‘The programme launched in 2015 and focuses on the digitalization of the economy. When the programme launched, our main goals included creating a digital development strategy, digital education, child protection and digital export development. More than 70 incubators and accelerators joined the programme instantly, making up almost half of the local startup ecosystem‘ – he said. We knew even then that we would like to create a strategy that understands the mission and the needs of all startup companies. This holistic strategy brought about lots of challenges. In order to discuss and understand these, we then created a series of Fintech Salon events where we discussed topics like crowdfunding and blockchain. The mentee startups made us realize how crucial it is to have an appropriate regulation and consumer protection. This is why DSP participates the preparation of the Hungarian regulation on crowdfunding that is now under review at the government.”
Anikó Szombati, Chief Digital Officer of the National Bank of Hungary declared that sustainability and digitalization are both priority for the NBH that prioritizes sustainable finance and the challenges of digitalization both as a policy maker and as investor.
The National Bank of Hungary published its Fintech Strategy in October 2019.
This strategy highlights that not only the international but also domestic crowdfunding regulation would expand the fundraising and financing methods of early-phase startups and SMEs and increase the competitiveness of the country as well as its economic development.
Martyn Eeles, investor and the Managing Partner of Monoceros Consulting was the last speaker of the event. He mentioned that he is available for advice for crowdfunding companies just like he advises startups and corporations all around the world. Currently, he helps seeking sponsors for the Web Theatre as a board member of TRIP.