Venture capital (VC) funding for startups dried up this summer. Startups that have relied on VC funding to grow market share, add employees and office space, while neglecting to cultivate viable business models were issued a dire warning by a leading VC fund of an impending “death spiral.” In other words, no more funding was forthcoming. Startups would have to make it on their own. Almost immediately, other VCs fell in line. The sound of Silicon Valley VCs closing their doors was heard throughout the land.
But across the Atlantic, in Budapest, Hungary, was Shapr3D, the most promising startup in CAD since Onshape. Into Silicon Valley flies István Csanády, CEO of Shapr3D and creator of the easiest-to-use professional CAD program ever.
We check in on Csanády upon his return to Budapest.
Why Did VC Money Dry Up?
A lot happened since 2021, the high-water mark for initial public offerings (IPOs): the pandemic, inflation, an erratic stock market that was harsh on newly minted public companies and tech in general.
The first half year of 2022 saw a fall in tech stocks like never before in the history of tech stocks. It started at the top, with the darlings of tech, the so-called FANG companies (Facebook, Amazon, Netflix, Google—really, its parent company Alphabet) all having mini-crises of valuation—if you’ll pardon calling hundreds of billions of dollars “mini.” As of May 2022, 61 percent of all software, Internet and financial tech companies were trading below pre-pandemic levels, as reported CNBC.
Without IPOs in the offing—the standard champagne-popping cash-out events for VCs—they were going to cut their losses. Normally twitchy, their reflexes sharpened by shooting down pitches. VCs reacted by cutting off funds across the board. Never mind that some of their chicks were not ready to fly. There were the cash hoards to protect from ravenous appetites.
“If you’re a company that needs money today—you’re like a really high-burn company—I wouldn’t want to be raising right now,” said Mitchell Green, the founding partner of the growth equity firm Lead Edge Capital, said to Business Insider earlier this year.
It was against the backdrop of cratering tech stocks and a Nasdaq index at its lowest since the 2008 recession that the legendary Sequoia Capital, vaunted for its clairvoyance for early investments in Apple, Google and Airbnb, and widely quoted for its “black swan” warning during the early days of the pandemic, issued a dire message to its investment partners. Founders had to find ways to cut costs, reduce R&D and marketing, or go down in a “death spiral.” In the follow-the-leader world of VCs, it wasn’t long before others closed their wallets. Said Lightspeed Ventures on their blog, “The boom times of the last decade are unambiguously over.” In other words, don’t come to us for more funding.
The Shape of Shapr3D
No visit to Budapest would be complete without checking in on our favorite CAD startup, Shapr3D. We meet István Csanády, CEO and founder, at his favorite restaurant, Gettó Gulyás, in the city’s Jewish Quarter. The lamb paprikash does not disappoint. But the mood is gloomy.
István has returned from a trip to the U.S., where he traveled down America’s tech corridors in Silicon Valley and Boston. He has not gone there to raise money, he says. Good, because none is forthcoming. He visits his friends at Apple, where Shapr3D got a “Best Design” award. Apple anchored a $100 million VC fund towards the end of last year but it aims at startups in "consumer technology, sustainability and neurological and women’s health."
We’re heading into a crisis, says Csanády. He doesn’t say it’s the end of the world, but the feeling of doom is unmistakable. Coming from a Hungarian, a people steeped in crises, his words are especially meaningful. Across the border, Ukraine is being destroyed by Russia. All of Europe has been drawn into the war in one way or another. Fifteen million Ukrainians have fled from their homes, according to the Brookings Institution, the highest number of displaced people since WWII. Hungary has absorbed over 700,000 of them.
In the United States, so far from the war, we had no idea.
“They are in my building,” says Csanády, referring to the refugees. “They are all over the city.’’
I look around the restaurant. The place is nearly full of the well-off and the well-dressed, the cream of the Budapest.
“Not here. But you can’t tell. We look the same,” he says.
Hungary is a member of the European Union but keeps the forint as its currency. Both the euro and the forint have plunged against the dollar.
“Have you heard about the protests?”
We had not.
“You will see them in the streets. They are raising the taxes.”
Hungary’s fuel (gasoline and heating oil) is subsidized by the government, making it among the cheapest in Europe and less than in California. But the subsidy is unsustainable and the government has to raise income taxes to keep fuel costs low.
The local news says that rent and food prices are at an all-time high and that inflation is in double digits.
The pandemic was at a lull during our last visit to Budapest and Csanády was running a full office. But more infectious variants of the original coronavirus are sweeping through the office. Many of the staff are calling in sick.
A country weakened from waves of the pandemic, Hungary is unable to withstand the economic punches being thrown at it, says Csanády.
Plans were to open up a rooftop of the building Shapr3D occupies. On prime office space in Pest’s financial center, the building would provide a view of St. Stephen’s Basilica—by law the highest point in the city.
“We had to put those plans on hold.”
Where Will Shapr3D Go from Here?
In the world of giant, established CAD companies, immune and isolated from war, able to shrug off the pandemic and the recession, and reporting on hundreds of millions of dollars in revenue each quarter, it’s tough to see such a promising startup lose its momentum.
Shapr3D is, as we have repeatedly stated, the world’s easiest-to-use professional MCAD program. Operating on Windows and Mac—on PCs and tablets—its Parasolid-based solid modeler is an immediate hit with anyone who picks up a stylus to try it. It is then that they wonder why a method as natural as a pencil to paper is not the way every CAD program does 3D—and how unnatural seem the keyboard and mouse.
Not until Csanády came along with Shapr3D did anyone appreciate the potential of the iPad and the Apple Pencil for CAD use. Everyone else had accepted the keyboard and mouse as the method to use. But Csanády wisely chose to include Windows-powered workstations so as to not limit the number of potential customers to the few designers and engineers who had iPads. But as brilliant as the implementation of a pencil was to CAD, Shapr3D has the misfortune of being in Hungary—far and away from the United States, as closely associated with CAD as Napa is to wine, as Wall Street is to finance and as Silicon Valley is to tech and venture capital.
The next step up for Shapr3D will not be incremental increases in technology but a step change in sales and marketing. Only then can a little CAD company become a big CAD company—as Autodesk and SOLIDWORKS have proven. And that takes funding, the very stuff that is now in painfully short supply.
Back to the Technology
Csanády is quick to dissuade us from the notion that his company depends on getting venture funding.
"Financially, we are in a very good position right now," he says, but cannot disclose details.
I try to assure Csanády that the war can’t last forever. The pandemic might, but we seem to be surviving it. I want to say slow growth—one subscription at time—is the way it must be for now, that Shapr3D may have to dig in and live off revenue rather than rocket off with venture capital, but he must already know that. Location and timing are everything. In another place (Boston) and time (2012), our last favorite CAD startup (Onshape) attracted $249 million in venture capital. Shapr3D, as far as we know, has received $12 million. It’s not fair.
Our lunch over, we part. On the way back to the hotel, our taxi ride across the Danube is blocked by protestors.