How a media personality’s change of jobs might influence the tech industry in Iceland

This post is from the Northstack Memo, our newsletter and commentary on recent happenings in the Icelandic startup ecosystem, written by @kiddiarni.

Yesterday, Kjarninn reported that Icelandic media personality Logi Bergmann would be barred from starting a new media job at Árvakur – publisher of Morgunblaðið and owner of K100.5 radio station – for twelve months. The reason? His former employer, 365 (owner of Stöð 2 and Fréttablaðið) is suing, because Logi had a 12 month notice period, as well as a 12 month non-compete after the termination period, barring him from working at another media company.

How does this connect to Icelandic startups? One word: Non-competes.

If this decision will be upheld by courts it could set a dangerous precedent that makes non-competes not only legal but enforceable.

Non-competes bar employees of a company from working for a company in a similar industry for a certain amount of time after their departure from the current company. And they slow down innovation. And are bad.

The claim that non-compete clauses chill innovation should not catch anyone by surprise. Think of Silicon Valley, the world’s technology center. California law forbids Silicon Valley firms from using non-competes, and employees are largely free to move. Workers’ mobility creates knowledge spillovers across firms and throughout the industry, all of which stimulate greater innovation. It was Bob Noyce, the founder of Intel, who hailed “the mobility of our personnel, which quickly diffuses knowledge of new techniques in design, production, and marketing.” (from Fortune)

The clearest example of this is between Silicon Valley in California and Route 128 in Massachusetts. Research suggests that the difference in how the two states deal with non-competes (in California they’re not enforced) had an impact on the growth of Silicon Valley and deterioration of Route 128 (relatively speaking). From the abstract:

[Professor Gilson] contends that legal rides governing employee mobility influence the dynamics of high technology industrial districts by either encouraging rapid employee movement between employers and to startups, as in Silicon Valley, or discouraging such movement, as in Route 128.

Because California does not enforce post-employment covenants not to compete high technology firms in Silicon Valley gain from knowledge spillovers between firms. These knowledge spillovers have allowed Silicon Valley firms to thrive while Route 128 firms have deteriorated. (source)

So, if this issue goes to court and the non-compete will be upheld, it might set a dangerous precedent for Icelandic industry.

Granted, there’s a difference when a company wants to stop a media personality to bounce between media outlets and when engineers move from one tech company to another. But if the findings of the court are very open, it might impact the enforcement of such contracts in Icelandic law as well.

Two notes on the funding report (from the Memo)

This post is from the Northstack Memo, our newsletter and commentary on recent happenings in the Icelandic startup ecosystem, written by @kiddiarni.

Last week we published our quarterly funding report (read it here) where we looked at investments and exits in Q3 2017. This Memo will be short and sweet.

Another top tier VC invests in Iceland

Index Ventures, arguably the top European VC firm, invested for the first time in Iceland this quarter. This adds Index to a (small but) growing list of top tier VC firms that have participated in Icelandic companies. Other’s are most notably Sequoia that invested in QuizUp and WuXi NextCODE (gray area whether it should be counted as an Icelandic investment, I didn’t in the report, but it’s one we should remember anyways), and New Enterprise Associates, that invested in CCP in 2015. This is also second time that Thor Fridriksson (co-founder Teatime Games) brings a top tier VC firm to Iceland (last time was Sequioa).

The significance is in my mind, obvious. Being in Iceland is not a barrier to international investors. Yes, teams need luck and connections, but getting international money is possible.

Also, now that there are two (kindof) investments from Sequoia in Iceland, we’re most definitely the most often Sequoia funded country in the world (per capita).

The QuizUp effect is showing

Two out of three investments this quarter were into companies founded by ex-QuizUp people. Viska Learning was founded by Vala Halldórsdóttir (ex-CRO & Editor in Chief), Stefanía B. Ólafsdóttir (ex Head of Data) and Árni Hermann Reynisson (ex VP Engineering). Note: Their first employees are also ex-QuizUp.

Teatime Games was founded by Thor Fridriksson (ex-CEO), Ýmir Örn Finnbogason (ex-CFO), Gunnar Hólmsteinn Guðmundsson (ex-COO) and Jóhann Þ. Bergþórsson (ex-CTO).

In addition to that, another ex-QuizUp founded company – Takumi – raised a Series A round earlier this year. That brings the QuizUp related rounds to 3 (out of 8 tracked) this year.

(Note: Yes, I’m obviously biased because I worked at QuizUp and they’re all my friends. However, I still find it an interesting datapoint of an effect I discussed in an earlier post).

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The Q3/2017 Funding Analysis

A quiet quarter on the funding side, but very interesting on the exit side. The effects of having only one active Icelandic fund still linger. Now that Crowberry Capital has officially started and NSA Ventures have more capital available due to an exit this quarter, deals might  start ticking up again, and some of the earlier Eyrir and Frumtak companies are due for a round soon.

Three seed rounds

We recorded three rounds in the quarter: Viska Learning, Ghostlamp and Teatime.

Last years Q3 was very active, and this time around there’s less than half of the investments YoY.

Comparing amount invested shows an even steeper drop, as we didn’t see any late stage rounds.

Brunnur the most active investor

Brunnur Ventures led two of the three investments. The fund has for the last quarters been the only active Icelandic VC fund, but now that Crowberry has been founded and NSA has some money to invest, they’re no longer alone in the market.

Investa, the angel / seed fund run by Hilmar Gunnarsson, Hjálmar Gíslason, Jói Sig and more veterans from the Icelandic tech scene participated in two rounds (Viska and Teatime)

The biggest news of the quarter, however, is definitely that fact that Index Ventures, a top tier VC, did its first investment in Iceland.

Seed money is Icelandic, growth money is foreign

This quarter most of the investment came from Iceland. The only non-icelandic capital were participants in Teatimes’ round (Index Ventures et al).

Although we don’t have a lot of deals to go on, you can see a trend emerging. The seed rounds are driven by Icelandic investors, but the later stage rounds are driven by foreign funds. There might be several reasons for that and we’ll discuss those in the upcoming Memo.

Two exits and a listing

Greenqloud was acquired by Netapp, in what is the first acquisition of an Icelandic software company by a Fortune 500 company (the completely first was probably DeCODE, acquired by Amgen in 2012). The amount was undisclosed, but we’ve discussed the acquisition in more detail here. The other exit was when Skynjun, an Icelandic audiobook publisher, sold to Swedish Storytel.

In addition, Klappir Green Solutions – a consortium of three companies, including Ark Technology and Data Drive – was listed on First North. Although no new shares were offered (it was only a listing, not a public offering), that move definitely created some liquidity for employees and investors.

This is the most exit activity we’ve tracked since the beginning of Northstack, which hopefully is a signal of things to come.

Looking ahead

This year will probably be the first of (hopefully) many where the Icelandic scene reaches some kind of equilibrium and predictable deal flow. Two to three active, local, venture funds that mostly focus on the earlier stages, and several later stage investments led by foreign funds.

It’s also a when the VC industry in Iceland reaches a certain crossroads: some of the management companies – Frumtak and possibly Eyrir – will likely start raising a new fund because they’ve fully committed their current capital, and whether or not that happens, might depend on whether the funds have success stories to tell. Others, like Brunnur Ventures or Crowberry Capital, are not in as much a need of raising more, because they have more available.

Google’s Pixel Buds will translate 40 languages into Icelandic in real time

At today’s Pixel 2 launch event, Google unveiled their answer to Apple’s Airpods: The Google Pixelbuds.

Northstack doesn’t normally cover the tech giants, except when it is specifically related to Icelandic tech. And this time it is. The Pixel Buds will include real-time translations, where you can talk in one language and the phone will speak in another.

The good news: Icelandic is on the list. This might open up some interesting innovation possibilities, and should make our minister for education, that recently revealed a new speech-technology plan, very happy.

The demo starts at 1:28, and you can see Icelandic in the rolling list afterwards.

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The company was founded by a group of investors and industry veterans including Einar Þór Gústafsson, former VP of Product Management at Meniga and Bokun.

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QuizUp founders’ new company Teatime raises $1.6m seed led by Index Ventures

Teatime, a new startup founded by four ex-QuizUppers, just announced a $1.6m funding round, led by London based Index Ventures. Other investors include David Wallerstein, SEVP at Tencent, and David Helgason, founder of Unity. Teatime had previously raised $200k from the founders.

“I am incredibly excited to work with such an extraordinary team, helping them bring to market a completely new concept. Teatime is our first deal in Iceland, a country with a growing tech scene, especially in the games sector,” said Guzman Diaz, investor at Index Ventures, that previously backed successful games companies King and Supercell.

The Teatime founding team is made up of four veterans from the mobile gaming industry: Thor Fridriksson (prev. founder & CEO of QuizUp), Ýmir Örn Finnbogason (prev. CFO of QuizUp), Gunnar Hólmsteinn Gunnarsson (prev. founder of Clara and COO of QuizUp) and Jóhann Þ. Bergþórsson (prev. CTO of QuizUp.

“This all happened incredibly fast,” says CEO and co-founder Thor Fridriksson. “After QuizUp was sold early this year, a long awaited vacation ensued. After a couple of months you started getting the urge to build something again.” He says that the founding team met during the summer and got this new idea that everyone became excited about.

“We pitched the idea to several of QuizUp’s early investor and got great feedback. Later, Index Ventures joined, which not only gives us capital to work with but also very important connections that will help us succeed. This investment will help us work faster towards our mission, which is to reinvent how people play mobile games.” Next up is hiring the first employees and starting production. “We’ll hopefully have something to show within the next months.”

Icelandic audiobook publisher Skynjun acquired for estimated €200.000

Skynjun, Icelandic publisher of audiobooks, has been acquired by Sweden’s Storytel. The purchase is payed for with shares in Storytel priced at a 30 day weighted price point. In the end of 2019, an additional, performance based earn-out payment. The total payout is estimated at €200K.

Storytel’s acquisition of Skynjun is one of three recent acquisitions of local audiobook publishers, Breakit reports. The others are from Bulgaria and Turkey.

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Klappir Green Solutions listed on Nasdaq First North

Last Thursday, Klappir Green Solutions (KGS) was listed on Nasdaq’s First North market. After two trades, the company’s B-shares were priced at 14.5 ISK per share, valuing the total available B-shares at roughly 960 million ISK, ~$8.8m. The company also has A-shares outstanding that are not listed. The main difference between the shares is that B-shares don’t have any voting or pre-emption rights.

KGS provides “consulting and software solutions to facilitate sustainability and responsible environmental operations.” Last year the company acquired two other companies: DataDrive and Ark Technology and added their offerings to KGS’s mix of products. According to their annual report for 2016, the company is currently working on merging the operations of the companies.

DataDrive participated in Startup Reykjavik 2015 and later received an undisclosed amount of funding from Klappir. Ark Technology received investment from Brunnur in 2015, but was then acquired by Klappir a little over a year later.

The listing didn’t include any additional share offerings.

More on Kjarninn.

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Nortstack – Reporting and analysis of the Icelandic startup scene