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Are we looking at a startup downswing in Iceland?

The last two Memo’s discussed the general interest in startups. A month ago, I wrote a post titled “Is interest in startups in Iceland decreasing?”. The main point there was to bring forward data about the declining participation in cornerstone events like Gulleggið – business plan competition, and some accelerators.

And yes, I’m completely aware that I’m starting to sound like a negative tech-journalist-type that wants clicks. But well, I’m neither (not a journalist, don’t care about clicks), and I’m only looking at some numbers. Please, if you have insights or comments, let me know (email). I’m easily persuaded.

There’s just a little under two weeks left of Q1 2017, and if nothing changes – if no investment is announced, that is – it is the first time for a long time that there have been fewer than two investments in a quarter, two quarters in a row. A picture explains this better. The sad block in the lower right corner is us right now. (Also, this means that there’s very little point in doing a quarterly funding analysis for Q1, which makes me sad 😞 )

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In fact, the last time we had two quarters in a row with only one investments each was Q3 and Q4 2013. At that time the only active fund investing in startup was NSA Ventures, I believe. Frumtak 1 had closed a year earlier (it was active until Dec 31, 2012) and no other VC fund had started investing.

In some ways, we’re in a similar situation now; there’s only one fund – Brunnur Ventures – that’s effectively active right now. NSA Ventures is capped, Frumtak 2 probably won’t invest in many new companies (they need capital to follow up on their investments), and Eyrir Sprotar is in a similar place, based on the most recent information I have.

Outlook

While it surely doesn’t look good right now, there are (some) positive signs up ahead.

First: the board of NSA Ventures will announce who will be hired as CEO of NSA Ventures this week. Almar Guðmundsson, chairman of the board, confirmed this in an email earlier. That means we should start seeing some movement there. (note: it seems the board did in fact not announce who would be hired as CEO)

Second: Crowberry Capital is raising, and hopefully they’ll close (soon). We could definitely use an early stage fund to keep the momentum going.

Third: I’ve heard rumours about an business angel network initiative. It’s something that has been on the horizon for some time, but apparently there’s some movement getting into that work now. That might spur some angel investment – although I have a feeling that there’s way more of that already going on than the numbers suggest.

Obviously, these three points are only enablers, not drivers, of startups. The main ingredient is founding teams and business ideas, and without them, any amount of VC money won’t help.

What do you think? Are we in for a downswing? Is the golden age of startups in Iceland over, or yet to come?

You can sign up to the Northstack Memo here. Delivered every week to your inbox 🙂

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Feedback Monday: Is interest in startups in Iceland decreasing?

A couple of weeks ago we looked at some data regarding activity in the startup scene. We received some very good feedback, and are posting it here:

On the gut feeling based on QuizUp and that not many startups spun out from there.

Helga:

  • 1. When evaluating the spinoff effects of a company, you have to have a more long-term view. Many of those that go off and create a new company do so when the former company moves out of the “initial” stage into a more “more of the same” stage. Ie. you have to look at people that have left Quizup since the very early days, esp people that were part of the initial team or the first round of hires.2. It is also too early to tell. The initial response for many employees is to seek a “safer” employment after a startup closes up and then after a short or long stint in the security of a larger employer they decide to venture out again.

On the economic upswing:

Hjálmar:

  • The economic upswing is definitely a factor as well. We saw a clear trend in 2004-2008 when hardly a single startup was created as “everyone” could get a well paid and (allegedly) safe job in finance. And while it’s the logical conclusion for each person individually, it’s not good for society collectively.

Egill:

  • I think it’s obvious that the economic upswing affects the entrepreneurial drive – the same happened in 2004-2007. This also applies, I think, to the interest of angel investors in this asset class. It has decreased somewhat, because there is a lot of other investment opportunities available.

On the basic premise of the article:

Salóme:

  • I think one of the reasons for the development you seen in the data is more options. For example, applications to Startup Tourism increased this year. There’s more available for people interested in startups than before: three accelerators, more focus on innovation and entrepreneurship within the universities, and a specific Entrepreneurship Master’s programme at University of Iceland. In general, I think the activity has held steady, in spite of the economic upswing.

Eggert: 

  • Regarding your thoughts on less startup interest, I think you’re right in many ways. However, my hope is that the startups that are active are becoming better, so that in the end its quality, and not quantity, that decide how well we do in this space.

Hrafn:

  • I’m a computer scientist, and up until recently worked at a startup. The company was going well, but not well enough for salary development to follow the cost development in Iceland. At the same time, expenses grew, and the idea of investing in my own real estate became less attainable.
    Therefore, I decided early this year to move, to a well established company that could offer better salaries and benefits. This is a theme I hear from other people.I think the reason behind this is a mix of many things. But when it comes down to it, I think the main reason is less exciting than many others: people just need to be able to pay there bills. While the bills are growing every month, it’s hard to work at bootstrapped startups.

 

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CCP posts record revenues, announces new game

CCP just released its financials for 2016. The company grew revenues by 31% and posted a record year of roughly $86 million in revenues with EBIDTA of $39 million and profits of $20.7 million. This means the company has around $260,000 in revenue per each of their 330 employees.

This suggests that the now 20 year old gaming company has been able to rebound from its two years in the red in 2013 and 2014, after the notoriously expensive write-off of the Werewolf gaming franchise.

Hilmar Veigar, CEO of CCP, credits these numbers to three things, in a recent interview with GamesIndustry.biz:

It was the opening up of skill trading at the beginning of the year, then the release of Citadel, and the transition to open access, all of which were phenomenally successful.

CCP’s main title, Eve Online, is now a free-to-play game, with in-game purchases (skill trading). Hilmar Veigar has also said previously, that the CCP’s venture into VR is “on path to break even.”

CCP’s spokesman didn’t comment on how the revenue is split between sources, that is, how much is Eve and how much is VR. This comes to no surprise, as the VR industry as a whole has been mostly silent about revenue and sales numbers.

Sparc: Full Body Virtual Sport

CCP also announced their next VR game: Sparc. The game, which has been under development under the name Project Arena and available to test at last year’s Fanfest, is a two player, full-body VR game, with gameplay similar to the classic Pong. 

Players stand face to face in a long corridor, armed with the ability to throw projectiles try to score points by landing shots on their competitors. At the same time, they have shields they can use to deflect shots. Apart from that the game offers single player training and other multiplayer game modes, as per the announcement.

This is the first VR game by CCP outside of the Eve franchise. The game is due later this year – no definite release date has been given.

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Is interest in startups in Iceland decreasing?

First rule of writing non-fiction online is that ending your headlines with a question mark is completely lame (and the question is usually easily answered with a “no”). However, this time around, this question is honestly something I’ve been thinking about over the last couple of weeks. I’m going to share a couple of thoughts (and data).

My (pessimistic) gut

This thinking started a while back, after we saw that most of QuizUp’s former employees started working at established companies. A large part didn’t even go to startups, but bigger corporate gigs, and only one company was founded from the remains.

At the same time, the economy in Iceland is going well. Low unemployment, low inflation, everything chugging along. Thinking that people that were otherwise inclined to entrepreneurship, find themselves in a nice job instead, could affect this as well.

Competition participation is trailing down

Last week, the Golden Egg business model competition (Gulleggið) announced ten finalists. Gulleggið has been a part of the Icelandic startup and entrepreneurship space for a long time (2017 is its tenth year). I would almost go so far as to say that organised startup community activity was nearly non-existent at that time. Why should it have started before? Everyone worked in finance and life was good.

Anyway, ten finalists were chosen out of 123 business ideas. A decent number, if you look at it in a vacuum. But if we plot the number of business ideas that entered the competition for the last five years, a trend emerges.

gulleggid-graf

The trend for Startup Reykjavik and Startup Energy Reykjavik isn’t quite as clear. Startup Reykjavik bounced back last year after a big drop, and looks to be on an upwards slope, while Energy applications are slowly declining.

accelerators

What do you think could be causing this development in participation? Send me a message.

Events are up and attendance not as much

Anecdotally, I’ve heard comments that event attendance is diminishing. Some attribute it to event fatigue – there’s so much to choose from, the average attendance goes down – but it could also be lower interest levels.

So, we scraped some data (thanks to our main engineer Kári Tristan) and got attendance data for events ranging back to 2011. These are events hosted by Icelandic Startups, Startup Iceland, Innovit, Innovation Center Iceland (NMÍ), Gulleggið, Startup Reykjavík, Startup Energy Reykjavik, Northstack, Sjávarklasinn and Innovation House. We got data for a total of 170 events covering 2011 until this moment in 2017.

Remember, I’m not a statistician and I haven’t done the prerequisite deviation and confidence interval calculations on this for it to be scientific. It’s mostly for the fun, and limited insights. If you’re interested in doing some of that number crunching, I can send you the data we have.

number-of-events

There’s a decent upwards trend in the number of events, which is something most of us that follow the ecosystem have probably noticed. There’s more people planning events, and startups in general have gotten more attention (anecdotally) than in the earlier years.

event-attendees

This graph shows the average event attendees per event by quarter. So an event in Q3 2014 had, on average, 95 attendees. There’s a trendline here, but not as strong as in the total events (and, remember, not scientifically tested).

My hypothesis is the following: Supply of startup related events has grown faster than demand / size of market, which leads to smaller groups of attendants (on average).

Sadly, we don’t have more nitty-gritty data, to see, for example, unique event attendants per quarter, or event attendance retention.

What does it all mean?

Not much, really. You made it to the end of the post, and there’s not a “No” answer to the question posed in the headline. There isn’t a “yes” answer either; it’s a total “I don’t know”.

What kind of data could we use to try to answer this? If you have ideas, let me know 🙂.

You can sign up to the Northstack Memo here. Delivered every week to your inbox 🙂

 

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Nordic startup organisations announce strategic partnership

Late last week, a group of seventeen startup organisations in the Nordics announced they signed a manifesto to form a strategic partnership.

The partnership, which according to a statement is to “creat[e] a channel for strategic cooperation and decision making,” has not been formalised yet, and exactly what shape it will take hasn’t been decided.

The group, collectively known as the Founding Partners of #Nordic Made, includes Icelandic Startups, SUP 46 and other similar organisations from around the Nordics, media like the Nordic Web and Arctic Startups, conferences like Slush, and more.

What are they committing to?

The manifesto states several things:

We agree to make strategic and collective decisions about:

  • International presence
  • Key marketing messages
  • Tangible measurements of success

Founding Partners of #NordicMade commit to:

  • Formalizing a #NordicMade organization.
  • Exploring opportunities for fundraising for a #NordicMade organization.
  • Establish a #NordicMade committee consisting of representatives from every Nordic countries.
  • To maintain transparency in all aspects of operation.
  • Create an open and inclusive community platform.

While not completely clear in the announcement what this means in practical terms, based on a conversation with Salóme Guðmundsdóttir, CEO of Icelandic Startups, I can say it’s the following:

  • The group will look into whether they should formally create an organisation, that has a CEO, a board / committee and more.
  • One of their long-term objectives is to market the Nordics as a collective region. Basically wrapping the activity in the many ecosystems in Scandinavian and Nordic cities under one Nordic brand, to the benefit of all.

This follows a collaboration that has been ongoing between many of these organisations already.

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The Technology Development Fund’s role in the Ecosystem

Everyone somewhat involved with startups in Iceland knows of TDF (Technology Development Fund). The fund gives out grants to a lot of companies, and is the lifeline of many in the early stages. While some might argue that angel investments are lacking in Iceland, the TDF definitely takes part in the early stage funding of the Icelandic startup scene.

With recent changes, the fund now offers bigger grants over a shorter period of time. Something that many had been calling for regularly. Last week the fund announced the first recipients of their new, big grant: $600k over two years ($300k per year).

TDF’s announcement:

Sprettur is a major grant, meant to support companies with good opportunity for big growth in the next five years. The companies need to show equity based funding to match the grant.

Obviously, great news for the companies. The one thing I’m puzzled about is the role of TDF in all this. As it is now, TDF and its vetting method (Business plan / excel sheet, who many will tell you is mostly made up) is the gatekeeper for government matching of investment money. Actually, this way the investors are matching the government money.

Now, I’m no expert on government matching programs, but this sounds a bit strange. Most matching programs I’ve heard of – be it Yozma BIRD, or varius angel matching schemes in Singapore, Korea or elsewhere – have the government funding following the investor, not the other way around.

I haven’t found any data on any of this, so I can’t make a judgment, but just based on basic intuition it would make more sense to me that the person making the decision have skin in the game, which is something the TDF definitely doesn’t have.

What do you think of this? Send me a message with your thoughts.

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Feedback Friday: Stock Options in Icelandic startups

A couple of weeks ago I sent out a Northstack Memo titled “Do startups in Iceland offer stock options?” discussing whether companies used them or not, and if not, why. I got a lot of feedback on that post, some of which is published below. If you have any thoughts, comments or questions, shoot me a message.

  • Jenný: I sit on five startup boards. One has no share option plan, two initiated a share option plan to employees during the past two years and two implemented a share option plan which I handed to them. My feeling is that this is in pretty good shape in our portfolio. The first point on founders losing stake can easily be addressed with founder vs common class of stocks.
  • Founder: We offer options at my company and have used the new laws to do it in a flexible and nice way. We think it’s a necessary as a way to give a sense of ownership, and not only for the earliest employees, but also for the ones that will come later. I don’t think Icelandic startup employees think much of the value of their options, which is reasonable because most startups fail, or never become valuable enough for the options to gain massive value. It might be that Silicon Valley employees deem the options too valuable, but there’s probably some middle ground there that is correct.
  • Sigurður: We are focused on this. We want a minimum option pool of 10-20%, depending on the company. I think all VC’s emphasize this. We want the company to have options available to make recruiting easier and make the team better. A startup should pay lower salaries and give out options.
  • Helga: We don’t have options, but we have a bonus plan instead. In general, Icelandic employees don’t value options that highly. They mostly look at what they get paid every month, and don’t focus on the long-term possible upside; which is understandable, because there are very few instances of upsides affecting employees.
  • Haukur: I am a founder and CEO and I will definitely offer stock options when it comes to hiring, which I hope I can do Q2 this year. Especially in the early stages, I believe wholeheartedly that it will benefit the company morale and increase productivity. It was one of the things we specially discussed when noting up partnership agreements between the founders.
  • Investor: I’m not sure whether the company’s I’ve invested in offer stock options, but it seems common for early employees to get equity. It’ll be interesting to see whether the new law will make stock options more common. I think your speculations are largely correct.

You can sign up to the Northstack Memo here. Delivered (almost) every Monday to your inbox 🙂

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Nortstack – Reporting and analysis of the Icelandic startup scene