Movement in the Innovation Committee

Earlier this year, Minister for Innovation and Industry Þórdís Kolbrún announced the creation of a bi-lateral committee on Innovation Strategy for Iceland. This committee would oversee the work of five sub-groups, each focused on a particular area of the innovation strategy. It would be a bi-lateral committee, with all political parties nominating members, as well as lobby groups and ministers.

On September 17, the ministry announced that the chair of this committee would be Gummi Hafsteins, Product Management Director at Google, in charge of Google Assistant. He’s also an angel investor and former founder / early employee at several startups in the smart assistant space (including Siri). This appointment was, understandably, met with a lot of enthusiasm by the community. As Gummi has spent a big part of the last years abroad, he’ll probably have the outsiders view when leading this work (which is great).

Now the ministry has announced the of committee members, which in my opinion is very promising.

Alongside Gummi we have most notably Davíð Helgason, founder of Unity, Hjalli of Datamarket, Helga Valfells from Crowberry Capital and María Bragadóttir from biotech company Alvotech. All of them represent experience, understanding, and skin in the game to the extent that we haven’t seen in a government committee around the tech and innovation ecosystem before. If we contrast this to the Science and Technology Council – Iceland’s main policy creator in Science and Technology – where members are more a part of lobby groups, bureaucracy or institutions, we see a much better representation of individuals from the entrepreneurial and operational side of tech and innovation.

These, among others on the committee, will hopefully be able to drive a certain total-review atmosphere in the committee.

Why is that important? A lot of the institutions that are part of the innovation ecosystem in Iceland have what I like to call Institutional Debt (it’s like technical debt for software, but for institutions). They’ve been created by the merging or rebranding of older, more political institutions, and still have parts of that deeply embedded in their DNA. This debt hinders the support environment in fully realising its potential – systems are very good at maintaining themselves, regardless of what the great people working within that system want to change.

An example could be the New Business Venture Fund (Nýsköpunarsjóður) – which has for the last roughly twenty years been an incredibly important part of the ecosystem, facilitating funding of successful companies like Clara and Greenqloud, the founding of Frumtak and more. However, changing times haven’t (yet) brought a change in governance, as the board of directors at the fund is still appointed according to rules giving a range of lobbyist organisations (like Fisheries Iceland and the Icelandic Confederation of Labor) legally bound board seats. This stems from history, because the fund was created by the merger of a selection of industry-specific funds. Now, I’m not saying the current board is bad – in any way – (honestly, I don’t even know who’s on the board right now), the point is only around the legal setup, which – to me at least – seems out dated. It’s this kind of institutional debt that I hope the committee will be able to address.

All in all: I’m optimistic. Great people have made themselves available for this work. Our Minister shows bravery by appointing non-traditional committee members, that hopefully lead to best conclusion. Thoroughly excited about the coming results.

This post is part of the Northstack Memo, a newsletter analysing the Icelandic tech, startup, innovation ecosystem. Sign up here.

StartupDocs bring legal templates for startups to Iceland

Startup Docs, a project by entrepreneur and angel investor Erik Byrenius, just launched in Iceland. The website, which hosts legal templates for startups, follows in the footsteps of StartupDocs websites for the other Nordic countries. The documents were adapted for Icelandic law by lawyers Daði Bjarnason and Jóhann Tómas Sigurðsson, partners at Lagahvoll.

Erik Byrenius

“The idea came from my own need when I became an angel investor four years ago. When I started investing it was difficult to know what were good, normal terms that both entrepreneurs and investors could agree on. There were no standards. So I decided to make my own and published that on StartupDocs,” says Erik Byrenius about the origins of the project. Erik founded OnlinePizza which sold to DeliveryHero, and more recently was a founding member of angel investment group Nordic Makers, which also includes Icelander Davíð Helgason.

“After launching StartupDocs in Sweden it became very popular. Norway and Denmark followed, and now Iceland”

Erik relies on pro bono work from local lawyers to help bring StartupDocs to new markets, which are based on the original Swedish documents, and adopted to local law for each new edition. Entrepreneurs can find investment documents, founder’s agreements, shareholder agreements, and other important legal documents to use in their startup.

“Founders sometimes forget the importance of having the legal aspect well thought out from the beginning,” commented Daði Bjarnason, partner at Lagahvoll, who adopted the documents. “And although we always recommend having a lawyer read over things, these templates provide a very good starting point.”

You can see all the templates and download them for free at StartupDocs.is

Unpacking the CCP sale

This post is part of The Northstack Memo, a newsletter analysing the tech and startup scene in Iceland.

The CCP Sale

As most of you probably know, Eve Online creator CCP was sold to Pearl Abyss last week, for a $425m in total. Pearl Abyss, a seven year old South Korean gaming company, will keep CCP operating as a standalone studio (for the time being at least).

Several things to unpack here.

First off, it finally happened. There’s been sale rumours surrounding CCP for a very long time. The most recent rumours reached their peak with a hint in Bloomberg, where then VR-leader CCP (they’ve since shuttered VR development), was apparently looking at a $900m+ price tag. Whether or not those were actual talks or not, we’ll probably never know, but it’s fair to say that this lofty price tag was connected to the VR hype of the time.

Second, as the price suggests, unlike most recently acquired Icelandic companies, this acquisition is not an acquihire or tech play, but a business that’s being acquired. Other exits, like Greenqloud, Clara, Datamarket, and more, were all focused on product or people, but never business (that is, revenue). So this acquisition not only shows that we can build cool stuff and great teams in Iceland, but also that there are viable, international businesses that can come from here.

Third, all press regarding this, whether it’s from Pearl Abyss’ CEO Robin Jung or Hilmar Veigar of CCP, mentions that operations in Iceland will continue. It’s almost mentioned too much. Also, people speaking on behalf of the company mention that Pearl Abyss had looked at the government’s plan on removing the ceiling on R&D tax incentives in Iceland when considering the sale. This not-so-subtle hint-hint, nudge-nudge to the government hopefully drives the point home: Iceland needs to be competitive when it comes to tax incentives, because if not, companies leave.

Fourth: the price. $425 million is the highest price paid for an Icelandic technology company ever. The next in line would be the price Amgen paid for Decode in 2012 ($415m). And in typical Icelandic fashion, media immediately started calculating how much money each and every person involved would now be worth (spoiler alert: they’re all doing it wrong). Also, in typical Icelandic fashion, no one really mentioned that part of the price was tied to performance. A big part. A $200 million part. Which is completely understandable, as Pearl Abyss is buying into a cash-cow (Eve Online), probably hoping that the company’s connections in the far east will help Eve grow there, so earnings-related performance ties are completely normal.

The (second?) birth of a gaming sector?

Looking at the news from a higher vantage point, I would make the case that we’re experiencing a birth of a gaming sector.

I know, we’ve had gaming companies before – and when I mentioned this idea to people more experienced than me, I was reminded of a similar time not so long ago when companies like Gogogic were all the rage – but this year alone four gaming companies received their second (or later) round of funding, totaling around $13m, with most of the money coming from leading gaming investors.

Now, I’m not known to be a cheerleader, and don’t want to sound like one, but if at any time we had hope in creating an actual gaming sector, with more than one company consistently turning a profit, developing internationally acclaimed games, attracting talent and creating value for the ecosystem, I’d bet that now is that time.

Guide to Iceland raises $20m valuing the company at $100m

Davíð Ólafur Ingimarsson, Deputy CEO of Guide to Iceland

Traveltech startup Guide to Iceland, which connects travel operators with travelers, and whitelabels such marketplaces through the subsidiary Travelshift, has announced a $20m funding round. State Street Global Advisors, in its capacity as an advisor and manager of private equity, invested in the company. State Street receive a 20% share of the company and a board seat for the investment.

“This allows us to continue marketing Iceland as a travel destination internationally,” deputy CEO Davíð Ólafur Ingimarsson said in a statement. “Aided by this investment, and Icelandic innovation that has resulted in a world-class software, it will be particularly exciting to pursue scaling to international markets.”

Guide to Iceland was founded in 2012, and this is the first investment in the company from abroad. On the companies travel platform, 500 travel operators are connected to travellers looking for experiences in Iceland.

“Our company growth targets are ambitious, but we’ve proven time and time again that we are a company that achieves formidable goals,” Davíð Ólafur adds. “We believe that the size of our company will increase substantially in the coming years.“

 

TripCreator raises $8m from a range of VC funds and business angels

Icelandic travel tech company TripCreator just announced a $8m fundraise from various VC funds and business angels.

“We are very excited to be launching the TripCreator platform to everyone in the travel industry, including bloggers,” said Hilmar Halldórsson, CEO of TripCreator.io. “Our disruptive new model of ‘free forever’, combined with our platform that is capable of both incredible speed and analysis options (in numbers that require a Google search to comprehend the magnitude) means we are poised to shake up the itinerary planning industry. We are simultaneously opening sales offices in both London and New York City and plan to move the company to the latter city by the end of the year.”

TripCreator provides white-label as well as branded solutions that can seamlessly integrate with existing platforms through dedicated APIs. The company is also pioneering a new business model for the travel industry – ‘Free Forever’. Taking a cut of the transaction fee ensures there are no out-of-pocket costs to customers for using the platform.

CCP Acquired by Pearl Abyss for $425m

Korean Pearl Abyss, maker of Black Desert Online, just announced it had acquired Icelandic CCP, maker of Eve Online. CCP will continue to operate as an independent studio with operations in Reykjavik, Shanghai, and London. The sale price is $425m.

Pearl Abyss CEO Robin Jung stated, “We are thrilled to have CCP Games join our team as Black Desert Online continues to branch out globally. CCP is a seasoned publisher with over 15 years of digital distribution experience and know-how.”

Rumours around the inevitable sale of CCP have regularly surfaced, with the most recent and public rumour being when someone leaked to (or placed) Bloomberg news that the company was eyeing a sale.

“I have been seriously impressed with what Pearl Abyss has achieved ever since I first visited their website for Black Desert Onlineand subsequently became an avid player of the game,” said CCP Games CEO Hilmar Veigar Pétursson.

“Pearl Abyss is a fast-growing company with lots to offer in terms of technology, capability and vision. I believe our two companies have a lot to learn from each other. We are very excited to join forces with them and achieve great new heights for our companies, our games and – above all – our players.”

This acquisition is, in nominal value at least, the biggest acquisition in Iceland’s tech history. The next one in line would be Amgen’s $415m purchase of Decode in 2012.

1939 Games raises $2m led by Tencent

1939 Games, maker of World War II digitally collectible card game Kards, just announced a $2m fundraise. The investment was led by Tencent, with participation from Finnish Sisu Game Ventures and Crowberry Capital. Viðskiptablaðið reports.

“It’s a great acknowledgement of what we’ve done so far to have as experienced investors as these participate in the round,” said Ívar Kristjánsson, co-founder of 1939 Games. “The financing should allow us to release the game, and we’re growing the team to support that.”

Their debut game, Kards, is currently in Alpha testing mode, and according to the company, more than 20 thousand have applied to become testers.

1939 Games previously raised an undisclosed seed round from various investors, and has received grants from the Technology Development Fund.

Reinvent the Pen: How an Icelandic Startup Is Tackling Diabetes

One day while visiting his father, Sigurjón Lýðsson realized a gaping hole in the medical treatment of diabetics: there was no straightforward way to monitor injections of insulin. Insulin pumps were too expensive—and though insulin pens might abound, patients could easily lose track of measurements and dosage.

For Sigurjón, the issue is personal. His father, who has type 1 diabetes, relies on daily insulin injections to stay alive.

And in 2010, when his father was also diagnosed with cancer, a brain tumor began to affect his short-term memory.

Thus the scene unfolded: while the two chatted over coffee, his father checked his glucose and injected himself with insulin. Moments later, he turned to Sigurjón and asked, “Did I inject?”

Sigurjón realized that, if he hadn’t been around, his father could have gotten himself into trouble: severe overdoses of insulin can cause seizures, loss of consciousness, comas and even death. Thinking that there must be an easy fix, he began to hunt for a device that could help his father keep track of his injections.

“Sadly,” says Sigurjón, “nobody has that yet.”

Undaunted, Sigurjón pressed on. His zeal for a solution led him to cofound the startup Medilync in 2012. After years of market research, the company has designed an app that utilizes computer vision and artificial intelligence to read usage on insulin pens and glucose meters, then readily tells patients when they’re due for another dose.

At the moment, those with diabetes still have to write down their entire regimen.

“It’s 2018,” says Sigurjón. “I’m like, ‘Why?’ It’s baffling that my dad’s insulin dosage and glucose readings are still scrawled on a piece of paper.”

So far, the company has netted a technology research grant from the Icelandic Centre for Research as well as a European Commission grant. A connection with technology titan Microsoft has proved particularly fruitful: Medilync is part of the corporation’s IoT & AI Insider Labs. Microsoft’s Iceland office also named Medilync its “Startup of the Year” in 2017.

Medilync plans to debut its app within the next few weeks.

Getting investors, however, has proven to be a struggle. Multiple factors could be at play—not only Iceland’s relatively small size on the global business stage, but also an ongoing stigma around diabetes. All too often, patients are blamed for a disease they did nothing to cause.

And Medilync sees its own goals as providing a fundamental service, not churning a profit.

“Everybody that you talk to—other than investors—they get it,” says Sigurjón, noting that most people are enthusiastic about a company that’s trying to help patients navigate the intricacies of a complex illness. “We need an investor who knows what this is about and understands what we are trying to fix. Perhaps we just haven’t been introduced to the right one yet.”

In the meantime, the company plans to take its show on the road: in September, it will partake in the UK Health Show, a London-based event that brings together a multiplicity of groups around the world working to interweave technology and personal care.

Medilync is also developing its own hardware—an all-in-one insulin pen with AI and computer vision—for markets with little smartphone adoption. For example, an estimated 82 million people have diabetes in Southeast Asia alone.

For Sigurjón, his dream is taking flight. He sees a streamlined, user-friendly insulin tool as just as necessary in 2018 as it was on that day with his father in 2010.

He often keeps in mind the story of a Microsoft employee who, won over by Medilync’s vision, began volunteering his time and resources to help the small Icelandic startup. When Sigurjón asked why, he said, “It’s really simple: I want to use my spare time to create something that helps people live better lives.”

Already Surpassing 2017: The Iceland H1 2018 Funding Analysis

Published a little late, this report looks at funding activity for startups and tech companies in Iceland in the first half of 2018, Jan 1 through June 30.

The year started with a bang with three notable investments announced in the first ten days of 2018. We’ve tracked one monster round ($75m+): a $150m round in Arctic Green Energy which we omit in some charts as an outlier, to get better information from the data (it’s noted where we skip it).

More cash flowing

We’ve already surpassed 2017 in total amount invested (not counting monster rounds, we had the $240m WuXi round last yearand in fact, reached that milestone in April. The first half of the year saw $48.9m invested in 11 companies (or $198.9m invested in 12), which will grow even more with investments from later in the year – 2018 is poised to be a great year in Icelandic venture investments, possibly overtaking 2016.

Note: Chart does not include rounds bigger than $75m

Even including big rounds, the outlook for the year is healthy.

Overall, we recorded 12 investments in the first half: five in the first quarter and seven in the second, on par with the last couple of years.

Skewed toward later rounds

Last year the investments skewed heavily towards smaller, early stage investments (<$2.5m). This time around, most investments are bigger, and most of the companies raising have raised before, suggesting a good increase in follow-on rounds.

In fact, of the investments we tracked, only two, Kúla3D and Kara Connect, didn’t have a previous round in our database.

Money is flowing in

Last year, most of the investments were from local investors. The first half of 2018, more than half of the funding rounds were funded partially or completely by foreign investors, and 83% of the capital came from outside of Iceland (not including the Arctic Green Energy investment).

Pharma and Gaming receive the majority of funding

It’s usually not worth it to break out specific industries, as the investments are usually too few for any interesting information to emerge. This time around, however, it’s good to point out two industries: pharmaceuticals and gaming.

  • Pharmaceuticals: Three investments totalling $27.1m, all into companies that have previously received investment.
  • Gaming: Two investments totalling $10m, both companies previously received investments.
  • Together, those industries received $37.1m, or 75% of the funding (not including the AGE round)

Connecting that to the bigger picture, where Iceland has big multinational success stories in both pharma and gaming, suggests that although neither is big enough to warrant its own breakout in Icelandic economic measurements, maybe we have industry seedlings in those two.

Exits

The only recorded exit was Bókun’s sale to TripAdvisor. The amount for the sale hasn’t been disclosed (I’ve dug through SEC filings, with no luck (yet)). Bókun is apparently doubling down on operations in Iceland, and recently sent out ads to hire 30 people in the city.

End note: Local VC is changing

In the first half of the year, the local VC funds (Frumtak I & II, Eyrir Sprotar, Brunnur Ventures, Crowberry Capital, and the government run NSA Ventures) only participated in three rounds, in both cases as lead investors. Brunnur did a follow on, and Frumtak and Eyrir Sprotar were completely silent (as expected, neither are really doing fresh investments at the moment).

NSA Ventures came back from a several year hiatus with a bang, taking part in a $3.8m round in Florealis, with fresh capital from the Greenqloud sale.

Similarly, Crowberry Capital has started to make regular investments, leaving three generally active funds (Brunnur, Crowberry, NSA Ventures).

Tempo to sell 30% to HPE Growth Capital at $62.5 million valuation

The Origo Board of Directors yesterday signed an agreement with HPE Growth Partners on an exclusive negotiation with the objective selling 30% of Tempo (subsidiary of Origo) to the investment fund. The valuation will be $62.5m

This marks the end of a long sale cycle for Tempo, which we wrote about back in 2016. Whether or not the sale comes with additional capital to support the growth of Tempo remains to be seen.

More details in the press release.

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Nortstack – Reporting and analysis of the Icelandic startup scene