Yesterday, the web journal Red Herring posted an article titled Iceland’s Startup Scene Punches Above its Weight, which discusses the Icelandic Startup scene. While it’s good for the Icelandic scene to receive coverage like this, we feel it’s important that what publications write accurately reflects the ecosystem. There were several issues with the article, some of which we have highlighted below. We’ve also sent the publication Red Herring a message, in regards to this article.
The article starts with an overview of Iceland, and then turns to discuss the Icelandic startup scene. The discussion starts with singing the praises of Bala Kamallakharan, founder of Startup Iceland, and his efforts. While Bala deserves much praise for his diligent and generous work, we think it’s important to note that the Icelandic startup scene and community is not built by one man, but by a big group of people.
Below, we’ve highlighted some of the factual errors or misleading paragraphs, and explained in better detail.
[Bala] added that before Startup Iceland there was no VC network in the country, but that now there are four groups looking to invest in local talent including NSA Ventures and Frumtak. Now, says Khamallakharan, foreign investors are taking notice.
While it’s true that we have four active VC funds (Brunnur, Eyrir Sprotar, Frumtak 2, and NSA Ventures), the statement that “before Startup Iceland there was no VC network” in Iceland is not true.
Frumtak was founded on December 23rd, 2008 and its investment period started on January 1st 2009. NSA Ventures have been active since 1997, when it was founded. Investment funds like Brú Venture Capital and Brú II were active in the mid 2000’s.
A recent freeze on foreign investment – Iceland’s attempts to stave off the boom-and-bust culture that caused its economy to cave in eight years ago – might put off some of those VCs.
There’s absolutely no freeze on foreign investment in Iceland. What we do have, are restrictions on the outflow of capital from Iceland. These measures, that are called capital controls, are also not recent. They’re from late 2008 / early 2009.
VC’s that want to invest in companies in Iceland have bypassed these regulations by investing in parent companies that are located outside the restrictions. Thus, the investors own a company, for example, in Delaware. That company owns all IP that is produced. Production is in a subsidiary that is located in Iceland.
The government limits the flow of the Icelandic króna overseas and has strict rules on how foreign currency is to be used, and that has literally forced some of our biggest successes to move their HQ overseas, so they can circumvent some of these restrictions,” Jonsson said.
While the capital controls are bad, we don’t know of any of our biggest successes that moved their HQ abroad. The only company that comes to mind is CCP, which is relocating their top management team to London, because they have an international operation. However, CCP is still investing heavily in Iceland.
What is lacking, added Gould, is a network of experienced mentors: “Startups that have grown beyond Iceland can contribute back to the ecosystem by joining boards of younger startups, mentoring less experienced entrepreneurs and extending their experience and international network back to the community which fostered their initial success.
It’s true that Iceland doesn’t have a big network of experienced mentors. We mainly don’t like the phrasing in this paragraph, because although the network of experienced founders isn’t big, it’s there, and they are very generous and active in helping startups in Iceland.
Attracting talent, however, is not a problem in a country whose dramatic landscape, liveable towns and work-life balance – “one of the best in the world” according to Kamallakharan – are putting it on the map.
We have a dramatic landscape, true, but asserting that attracting talent in Iceland is not a problem is a stretch. Just recently, the government was lobbied by IGI (Icelandic Gaming Industry) to give foreign specialists a special tax discount because the companies in IGI had a difficult time attracting talent.
While we appreciate coverage of the Icelandic scene, we think articles should be fact-checked. Feel free to reach out to us, we’re happy to!