500 Startups in Budapest
Meet Marvin Liao, 500 Startups partner, brilliant mentor, and our guest at the MSC Beta Launch Party
How does Silicon Valley really see the CEE region?
We caught up with 500 Startups partner and former Yahoo exec Marvin Liao about the state of startups in the CEE region, the right ingredients for a healthy startup ecosystem, and corporate startup engagement.
Join Marvin and the Budapest startup community at the MSC Beta Launch Party on September 12th (If your invitation’s still in the mail…just register here!).
How would you say tech has changed in the last two decades?
I mean tech has changed a lot, right?
It went from being this sort of weird thing done in the corner by a bunch of nerds, and now if you think about it, tech is central to pretty much almost every single industry, everything you do.
If you think about the impact that tech has everywhere, you know, tech is now for better or worse the cool kid on the block.
So the center of power, the center of money, is actually if you look at it, tech.
Just look at the stock market right? Think about the companies that have the biggest valuations now, they’retech companies. And that was not the case 15 or even 10 years ago.
So tech has become much more central in society, in business.
And there’s growing pains there right? And I think you look at the impact that tech has had on society overall, I think people are realizing that we’re growing up and I think that’s a good thing.
Yeah, and actually can we still even talk about ‘tech’ as such? As Marc Andreessen said, software is eating the world, and everything is going to be tech. How we buy books, how we order food…
I mean even how companies are run, I think tech is infiltrating every single aspect of our lives. And think about the impact social media has. There are these social media platforms now — you know politics is being affected, elections are being affected, so the impact is in every day. And so that’s exciting and also scary at the same time.
I think tech as an industry is now growing up to realise the responsibility it has to actually being good stewards.
So what do you see regarding the changing landscape of early stage startups, how has that changed? Is the barrier to entry lower, is it easier and quicker to build startups?
Yeah, I would say it’s easier than ever to start a startup, to do a startup. That being said, it’s harder than ever to actually be a successful startup. There’s a lot more noise, you actually need a lot more money basically. Once you hit Product Market Fit you need to have way more money and resources to basically scale and become very very good.
And so you’re seeing fewer and fewer breakouts, right? But having said that I think therein also lies the opportunity. I think that the companies that are becoming bigger now are actually much stronger. So it’s actually Darwinism at its best, there’s a lot of noise, there’s a lot of companies, and the ones who actually do survive tend to be the strongest.
And what do you see, what fields or verticals are the hottest right now?
You know fintech is still super interesting. And this is beyond the Blockchain BS stuff. Digital health continues to be very interesting. But you know what I see in general, just like straight up enterprise software and SaaS still continues to be a huge space.
If you think about cloud penetration overall, it’s still relatively small. Probably 20–30% of software is cloud, so there are still huge huge upsides still. It’s still early days here.
You travel a lot, you spend a lot of time in Europe, so I guess you get this question a lot, but what differences do you see between Europe, especially the CEE region, and the Valley and US hubs?
I’m super bullish about CEE, that’s why I’m spending a lot more time there. I have spent a lot of time there, but I’m spending a lot more time and will continue to spend a lot more time over the rest of this year and next year. I’ve spent a lot of time in Poland, Ukraine and Russia, I’ll be coming to Hungary soon. The reality is, I’m super excited by this region, because the hunger level is very very high, there’s great technical talent.
The issue in general I think, is that there’s a strong imbalance of startups and money. There’s just not a lot of VCs and angel investors and that’s good and bad right?
It’s bad in the sense that the money isn’t there to sort of grow the ecosystem. The good thing about it is that you’re still seeing a lot of strong companies come out of it that are more bootstrapped, and that bootstrapped businesses are just better. They have a better culture and better habits, in the sense that they know how to build great businesses without a lot of money, and that’s a good thing.
I also think what’s interesting, the big gap I think in the region is the commercial mindedness, the sales and marketing talent. But I also think that’s slowly being built, and that’s also the opportunity as well and part of the reason i spend a lot of time there.
What do you think about the model, that actually many Budapest-born companies followed, where they kept all their R&D and product in their native city, like Budapest, and moved all the sales and biz dev to the US?
Yea, that is a model, right? It’s so expensive right now to hire engineers in Silicon Valley, that in the long term you’re just not going to see a lot of engineers living there.
There will be some, but the reality is that this is the model right? Sales and marketing sit somewhere in the US, probably even corporate offices sit somewhere in the US or Western Europe, and then engineering sits in Eastern Europe, that is a very common model.
I know that you are pretty interested in this space but what do you think about remote work and the changing culture of work?
Huge fan of remote work!
If you think about how expensive a lot of these central hubs are, whether you’re talking about London, or New York or San Francisco which is just ridiculously expensive.
You look at places like that and you go, there’s still a pool of sales and marketing talent, it still makes sense to keep them here, but I actually think like in the long term, especially with the available tools like slack and zoom, long-term you’re going to have widely distributed teams.
You’re going to start seeing this as you do in Automaticc, for example, or Toptal. There’s just, there are more and more prominent companies that are being run as remote companies.
What is the key to building a healthy ecosystem? How can Budapest improve and advance as an ecosystem?
I think it’s happening already.
Think about it, there are already some very successful companies like Prezi and Logmein. And that I think comes with, these people start to angel invest, they start to hire people, and show them examples of what a successful startup or company is, and I think that that is the start of a healthy ecosystem.
I think money is helpful, right? Whether it’s sort of well-run accelerators or well-run VC funds that are much more founder friendly, I think that’s helpful. But it’s really about the founders and companies.
So for example, one of the reasons I’ve started to spend more time in Poland, Poland has had a terrible ecosystem at least from a VC and funding and accelerator perspective, but that actually hasn’t stopped them.
You’re starting to see some really really interesting companies emerge, particularly on the B2B SaaS side in Poland, that have been mainly bootstrapped. They’re doing like 75k, 100k USD in MRR, and serving basically a global customer base. And so you’re starting to see more of that, and that’s interesting.
If you look at what’s going on in the Ukraine. Grammarly was mainly a bootstrapped company up until they raised this massive Series B. And if you look at companies like Readdle, they’re all bootstrapped businesses, but serving global customers.
I think that’s the model. And you’re going to see a lot more of that in Central Eastern Europe.
One of the common mistakes that I see startups who want to become a global success make, is that they plan to launch a product, start in Hungary, win the market and then go global. Versus the actual success stories, they start global by default. One of my previous bosses said, Estonia produces so many success stories because they are small enough to think global by default. Whereas in Hungary many people might think that the Hungarian market is big enough to start.
I agree, I mean nobody cares about the Hungarian market except for Hungarians. But Ithink there is a benefit of being a small market. There is a reason I spend a lot of time in the baltic region.
You know Latvia, I actually am going to spend a lot more time in Estonia, I have a lot of portfolio companies out there right. You know Portugal. I’m in Finland.
Because these are full of technical talent, full of interesting companies that have gone global because the local market’s just not big enough.
Or Ukrainian companies, I love the Ukraine, but they’re in a war, their economy is kind of challenged, so you kind of have to look global. That’s why you’re seeing some really interesting companies there.
