Colabs: too much money, not enough experience in Budapest

01.30.2012, Hungary, Incubators / Accelerators, by .

As part of my quest to understand the Hungarian startup scene better, I sat down with Zsolt Bako, the co-founder of Colabs, a Budapest co-working space and startup community hub. We talked about the early days of the Budapest startup scene, the (shocking) abundance of VC money, building expertise, and lots of other things.

The “early” days.

Zsolt Bako got the startup fever after he started reading TechCrunch. (Someone should study how many entrepreneurs around the world have been inspired by this blog empire!) However, in 2008 very few in Budapest even knew what a startup was. According to Bako “people didn’t know what a startup really was, but they were interested.” Something had to be done, but there were no blogs, no meetups, no forum for finding other people interested in this mysterious “startup” thing. So Bako emailed a couple friends he thought might be interested, created a ning group, and organized Budapest’s first Open Coffee meetup. Three people came.

As the meetups slowly grew in size, the group realized it might also be interesting to work together, and they started organizing jellies (casual co-working sessions). One thing led to another and Colabs was born. First as a small co-working space with 16 members in a rented apartment in the center of Budapest, and now as a serious 600 square meter office.

And it looks like Colabs weren’t the only people getting busy in the last few years. According to Bako, the Budapest startup community is now very connected with a bustling startup scene full of meetups, conferences, organizations, and investors. To get a better idea, check out this map of the startup ecosystem in Budapest created by Colabs back at the end of 2010. They promised they’ll update it soon.

The birth of Colabs accelerator and why it’s in Hungarian.

As the Colabs coworking space grew in size it was able to house a lot of the startup-focused community organizing in its own space. They started organizing more networking events (more on that later), pitching contests, parties, and more. In addition to the physical space, they realized they could also offer a “talent pool”, composed of the community of programmers, designers and business people that grew around them. Throw some investors in the mix and you have an accelerator in the making.

The Colabs accelerator is a fresh new endeavor – they are just finalizing their first class of startups. Unfortunately, it seems like the accelerator will be in Hungarian for now. Even though Bako pushes for all Colabs communication to be in English, it is not the most effective form of communication in Budapest. “The community keeps switching to Hungarian,” said Bako. Another reason for outward facing events to be in Hungarian is the need to use Hungarian in outreach to other institutions, such as universities. Confidence in English is of major importance for startups wishing to go international, so we will watch how the Budapest community grapples with this obstacle.

Networking for shy nerds.

When Colabs tried to organize networking events, they realized they were facing a bit of a cultural obstacle. “People are not as open with each other here as, for example, in the US. They are a bit shy about talking to strangers about their ideas.” The solution was to find some sort of an icebreaker. Colabs created a platform called Startup Flyer, which allows people to submit a 140 character bio of themselves outlining what they have and what they need. Members can browse these anonymous bios and pick 5 that sound interesting. These 5 people are then notified of the next event where they can meet the person interested in them. When any of them check in at the event, they receive a text message with personal details of the person of interest who is already there. It’s a bit like hard core networking combined with blind dating.

The Startup Flyer platform seems to have traction in Budapest. It has over 700 members right now and the Colabs team is working on building out further functionality. Once it’s ready, they would like to offer it to other startup hubs in different cities.

A deluge of venture capital.

Yes, you read that right. Apparently, Budapest has tons of VC money. Zsolt Bako: “The funny thing is that right now we have more VC money than we need.” Or, rather, there was a mushrooming of VC funds connected to the EU investment program Jeremie. There are at least 8 Hungarian VC funds supported by this program right now. However, these are traditional VC funds, usually unable to go below $1 million investments. On the other hand, most projects seeking funding are at the seed and angel level, unable to meet the requirements for such large rounds.

Those who do succeed in getting this Jeremie money have one more special hoop to jump through. In Hungary, the funding has a special stipulation about geographic destinations for the money: anywhere except for central Hungary, where Budapest is located. Yes, it is nice to support economic growth in the impoverished periphery, but it’s the exact opposite of a what is needed for building a healthy startup ecosystem. But as is often the case, bureaucratic obstacles don’t have to be a big deal. Many companies have “relocated” to small towns in rural Hungary on paper while maintaining their physical base in Budapest.

The largest obstacle is lack of experience.

Creating a startup was much harder in Budapest 3 years ago. Now there is money, connectedness, and enthusiasm. The only missing thing is experience. According to Bako, the angels, VCs, and entrepreneurs are all inexperienced when it comes to startups. There are success stories starting to emerge, such as Prezi, Ustream, or LogMeIn and their experience is currently transmitted through peer-to-peer education. The handful of successful exits, such as the acquisition of Index Tools by Yahoo, or stock.xchng by Getty Images, is also providing the ecosystem with more experience and angel money.

Zsolt Bako summarized the progress in Budapest very poetically: “It’s getting better. It will never be the next Silicon Valley, but it will be the best Budapest that could be.”

Bonus question.

I always try to find out about people’s favorite startups. Some hesitate to pick just one, but Bako didn’t hesitate for a minute. He praised Webcam Laboratory from Budapest and I could see why. With the goal of seeing how much they can squeeze out of cheap devices for science education, as their first project they let you turn your webcam into a science laboratory. Awesome, no?

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