Category: The Memo (Page 2 of 4)


Latvia creates startup law and Iceland should follow suit

This post is was originally published in the Northstack Memo, our weekly newsletter. You can sign up here.

An interesting post on new laws in Latvia made the rounds in the startup circles in Iceland last week:

The Startup Law, approved today by the Latvian Parliament will create a tax regime … that will effectively double venture capital investors’ money in young Latvian startups. This law is seen as part of a wider push to make Latvia an attractive base for startups.

“When investors decide to risk money backing a startup in Latvia, almost half of their money goes to pay social and personal income taxes …” said Andris K. Berzins, board member and co-founder at the Latvian Startup Association … “This is because in most startups there are few other costs aside from salaries. So together with the Ministry of Economics, we decided to tackle this cost directly and the result is this new tax regime.”

The law foresees two tax plans: a special flat tax regime, currently 252 euros/mo per employee … Or for more highly qualified employees with a doctors or masters degree or 5+ years of experience, a regime where all their social and personal taxes are covered by the state, and they receive full social benefits

Latvia is lifting taxes on qualifying startups, so they can make their money last longer. Nothing new, per se, in the increasing competition between countries luring promising companies in. And due to the recent technological, that make starting (and moving) a company much easier than before, this fight might get bigger (and dirtier?) in the coming years.

Other countries do similar. Canada, for example, has on several (confirmed) occasions reached out to Icelandic companies. They offer tax breaks (both personal income and corporate) to move there. The main difference here is that Latvia is blanketing this to all companies, not only companies contacted by the local economic development office. (Question: does Reykjavik have one of those?)

The most obvious reasoning for passing a law like this one, would be something similar to the following (keep in mind, I’m not an expert on Latvian econmics):

Latvia (as the other baltics) is seen as an outsourcing / offshoring nation. Western European companies outsource their software development to Latvia. The long term value in actually having the companies in Latvia is something the government there would very much like, so they subsidize startups that come to / are started in Latvia.

And I think Iceland should absolutely have the same mindset.

Nations and economies depend on the businesses that are operated in them to drive the value creation. This value generation in the end pays for everything the government does. Subsidies and other efforts to lure companies to certain places are one way of artificially creating an ecosystem, that (hopefully) drives economic growth down the line.

Some notes on this:

  • Small nations like Iceland will have a very hard time organically growing a software startup ecosystem that consistently produces medium- to high value companies. We’re simply too small.
  • Another way to get to the same result is to try to artificially create the ecosystem. While I’m not convinced that it can happen – and the government luring companies here would be a better way than actually creating them – there’s no shame in trying. I could argue that it’s better to try and fail than not try at all in these matters (isn’t that generally the case?)
  • Iceland’s tourist boom has covered up the lack of growth in the international sector, identified in the McKinsey report as essential to Iceland’s future prosperity, and pointed out again in the Chamber of Commerce’s follow up report.

Recent news and economic changes support this even more. The strengthening of the Icelandic krona makes operation of international (tech) companies in Iceland harder. As international companies, their revenues are mostly in foreign currency (99% is probably a good guess-timate). At the same time, their costs (mostly salaries) are in ISK. You don’t need an MBA to see the difficulties that arise here. This is already affecting Icelandic companies in a way that is bad for Iceland (i.e. focusing hiring to non-Iceland offices).

Iceland currently has no government, but I hope that when we will, the people at the top take these things seriously.

This post is was originally published in the Northstack Memo, our weekly newsletter. You can sign up here. Image is of Riga, capital of Latvia, from Flickr.

Easing capital controls: Effects on the startup scene

This post is was originally published in the Northstack Memo, our weekly newsletter. You can sign up here.

Last week parliament finally passed a bill easing the capital controls:

Individuals’ and companies’ freedom to transfer funds to and from Iceland and to carry out foreign exchange transactions will increase greatly, according to the bill of legislation that the Minister of Finance and Economic Affairs will present before Parliament tomorrow. The bill is part of the authorities’ capital account liberalisation strategy, introduced on 8 June 2015. With it, important steps are being taken to lift the capital controls in full. The bill has been prepared in accordance with recommendations from the International Monetary Fund (IMF), with economic stability and the public interest as guiding principles. (Finance Minstry)

This is obviously a huge step for Iceland, and could mean big changes for the startup scene. Just for kicks, I dug up an old tweet from investor Chris Dixon at Andreesen-Horowitz:

Investors that wanted to put money into Iceland were able to choose between two exchange rates for the Icelandic krona. Offshore rates which were cheaper for the investors (i.e. got more kronas for each dollar) and onshore rates, which were more expensive. However if you picked the offshore rate, your money was “stuck” in Iceland. Investors that chose the onshore rate could move the money around.

Note: This was a surprise to me. I believed that foreign investors were not able to get money out of the country after they invested. However, I wonder whether that possibility was advertised enough.

Although the possibility was there, to use the onshore exchange rate and invest “normally” in Iceland, some startups chose to go the dual-structure route. Those startups incorporate overseas (Delaware or London, for instance) and keep all intellectual property there. Then they found a subsidiary in Iceland (hence the dual structure) that bills the parent company for development.

This means that the main benefit for the Icelandic scene is making foreign direct investment possible for Icelandic investors. Both individuals and institutions.

Therefore, Icelandic VC’s can now invest in non-Icelandic startups. And Icelandic angel investors can invest in non-Icelandic startups as well. This is great news.

Let’s dive into why.

  • Diversification: Maybe not a major issue, because most startups that receive investment are on an international level. But betting on companies from more locations than one (i.e. Reykjavik) might be a way to diversify the portfolio.
  • Specialisation: Icelandic VC’s and investors could use this opportunity to specialise in a vertical. Instead of specialising in companies that are in Iceland, a fund could decide to focus on VR and AI companies. If that kind of decision is made, it’s obviously better to have access to a bigger pool of startups.
  • Larger funds: Iceland specific VC’s don’t warrant the size of fund that would be optimal. A bigger fund means higher management fees which means the fund can invest more in staff (like analysts) and promotion (office in Silicon Valley, travel more, building bridges, etc.). I think it will be hard to make the case for a big (10-15bn ISK) fund, if it’s supposed to only invest in companies in Iceland, especially since we haven’t seen a VC backed exit from Iceland since Datamarket.
  • Better funds: In the longterm, the Icelandic scene should absolutely want their VC’s to invest all over the world. Just like we want our startups to think big and go global, we should want our VC’s to do the same. One or two globally successful VC funds with headquarters in Iceland would raise the quality of the Icelandic scene quite a bit.

How do you think the easing of capital controls will affect the Icelandic startup scene? Shoot me a message with your thoughts.

Iceland has a tech-sector strategy problem

For the last 18 months, as I’ve been writing for Northstack, one thing has become clear. Iceland desperately needs a coherent strategy for its approach to the technology sector. The most recent plans and actions include a wishlist with lots of ideas but lacking strategy, and focused financial reform for startup companies. But I don’t see a long-term strategy, or focused attempts in moving Iceland in a particular direction. What is missing is an analysis of the challenges Iceland faces, a decision on where to steer the country, and a plan that makes sense.

One big challenge, or a symptom of a challenge, is brain drain. That includes individuals deciding where to lead their professional lives and companies deciding to build their operations elsewhere.

While this may sound overly pessimistic, I think it’s important. The world is getting smaller. Future generations will not let arbitrary concepts like borders or nations interfere with where they work and live. Due to it’s small size and location, Iceland might lack in big, exciting opportunities. That is, outside of servicing tourists, fisheries, and energy production, there needs to be a reason for the generations of the future to stay here. This sentiment is (somewhat) echoed in an interview with Hilmar Veigar (CEO of CCP) on Kjarninn:

The brain-drain is different now than before. Young, talented people are bolder than before. I see a lot of our smartest people going straight to work, for example at Google, rather than starting a company in Iceland. When I was young, that wasn’t an option, because there was no Google. Working at Microsoft or NASA was maybe a distant dream and there were maybe three Icelanders that went there. It’s completely different now and the multinational companies are so hungry for talent that they find them wherever in the world they are. And the talent looks for those companies as well.

I’ve witnessed this first hand through the winding down of QuizUp. People have asked themselves “Why should I stay in Iceland?” and there really is no clear answer.

For a long time, the lingering thought has been that Icelander’s always come back. They might go abroad to study or work for some time, but in the end, they want to come back. I’m not sure that will continue. There need to be opportunities for people to work at a global scale for Iceland to be competitive.

In the interview, Hilmar mentions how few companies have reached real scale in Iceland:

This means that we have two international companies in the technology sector that have turnover between $500-1000m. Those are Össur, founded 40 years ago, and Marel, founded 30 years ago. Then we have CCP, a 20 year old company, with around $100m yearly turnover, and Meniga and Nox Medical, both with around $10m in turnover. This might be good per capita, but it’s not groundbreaking.

While Hilmar forgot Tempo (on track for about $12-15m in revenue for 2016) he mentions a very important point. Number of successful companies in Iceland may be impressive per capita. But the global talent market doesn’t care about per capita.

As Hilmar mentions, Iceland has shown resourcefulness when it decides to do something. The national soccer team is a good example. In the case of technology, I think we need to do a similar thing. Officials need to analyse the situation and decide where to focus. Invest resources in making Iceland a great place for a specific technology. That doesn’t mean shun other types, it’s just a given that to create a competetive ecosystem we need to focus.

And I think we can do it. Singapore did it with biotech, Isreal did it with high-tech, Montreal is doing it with IT. We just need someone to pull the trigger and decide where to go.

Important legal changes happening for Icelandic VC’s, and notes on Slush PLAY

This post was originally part of the Northstack Memo, our weekly commentary newsletter. You can sign up here.

Iceland doesn’t have venture capital association to lobby on behalf of Icelandic VC’s, which might be one of the reasons an important exemption wasn’t extended. I wrote about this back in April:

Raising funds became harder this year

On January 1st 2016, special exemptions for pension funds that allowed them to own up to 20% in a SLHF ran its course. Without the exemption, they can only own 15% of a given fund. That small drop means GP’s need more pension funds on board than before to raise a fund. That’s bad, because in Iceland, pension funds are the biggest pool of investors in venture capital.

One of the VC’s I’ve discussed the issue with, said it would be “very hard, if not impossible” to raise a new fund.

Six months later, the Ministry of Finance includes a provision in a new bill on pension funds to increase this limit to 20%. The change would fix this number at 20%, and not require parliament to extend exemptions every year, like it did the 10 or so years before.

This is obviously great news for Iceland and Icelandic VC. GP’s raising a fund won’t need seven participating pension funds (which is hard), so raising should be easier. That said, I believe asset managers at pension funds will want to see some successes (that is exits) before they pour more money into the VC market.

Slush PLAY and the future of VR in Iceland

Yesterday I wrote about Slush PLAY and its future:

Slush Play, second edition, showed that it’s possible to bring VR and gaming professionals from all over to Iceland. The schedule was full, interesting, and diverse. In addition to bringing people to Iceland, the event brought together the local industry for a two-day extravaganza. I foresee two important functions for the event going forward.

Firstly, as speakers mentioned, we might very well enter a desert walk in the next years. Fewer investments and less general interest. It’s part of the classic hype cycle, and the Icelandic community should be prepared for it. Continuing the event and growing it all the way through the desert is important. That way, when VR is closer to mainstream, one of the most relevant events will be in Iceland. Because when VR gets closer to mainstream, VR events will pop-up all over. Having a 5 year-old proven event happening in Iceland competing for attention will be a great asset for the Icelandic community.

Sorry for the long quote, but I think this is an important point. For an area to become a relevant place in any technology in the long run, it has to achieve competitive advantage. That requires a lot of factors, which I think can generally happen in two ways:

a) Naturally: The area’s industry has the necessary factors to have achieve competitive advantage. This can be gauged using tools like Porter’s five forcesIf the requisites arise naturally, like has happened in Iceland’s seafood industry, the area has a good chance of reaching competitive advantage.

b) With focus: The area’s stakeholders decide to focus on that technology, putting resources into building local expertise, infrastructure, and opportunities (like Singapore did with biotech). In the case of VR in Iceland I think this will be necessary. The reason is that we won’t be able to build a competitive advantage the natural way. That would require us to have forces like hardware producers and demanding consumers, neither of which we have (at the moment).

So – until we’re there, I guess we’ll have to continue putting effort into it, and fake it till we make it 🙂

Bullshit taxes and Icelanders abroad

The following post is from The Northstack Memo, our weekly commentary newsletter on everything startups and tech in Iceland. You can sign up here.

Bullshit taxes incoming

It continues to amaze me how politicians can be bullied by lobby groups that are at the brink of total irrelevancy. The newest death-spasm by music rightsholders is interesting to say the least. The ministry for education and culture put forward a law bill that requires the state to pay upward of $2 million every year to rightsholders. These taxes were already there, but outdated, and paid around $70K to rightsholders in 2015. So they’re basically increasing it by a magnitude of ~30x.

The state will pay 1% of the tollprice (CIF: cost, insurance, and freight) of all computers and smartphones imported to Iceland, and 4% of USB memory, datastorages and SD cards. (

Basically, smartphone users and photographers, will be paying music rightsholding organisations, because they’re using these devices.

We’re witnessing a clash of world views. Rightsholders think they should be compansated (through taxes, no less) because technology has allowed people to copy everything, all the time.

The world, however, is changing. Music and entertainment is no longer a limited good. Through the internet, it’s unlimited, and things that are unlimited will always approach zero cost to the user.

In the appendix to the bill, the lawmaker notes:

Due to this, a reduction in “damages” of rightsholders because of copying of music and movies is foreseeable in the future. It’s therefore unavoidable that the payments of compensation for copying will be revisited. (

It’s good to see that the state is looking to the future. However, I think they’re underestimating how far we’ve come already, at least according to the data.

The RIAA (Record Industry Association of America) released a report on music industry sales for the first half of 2016. Paid subscriptions in the US have doubled in one year (from ~9 million to 18 million). More importantly, the report states:

The revenue growth from subscriptions alone more than offset the declines from physical sales and permanent digital downloads. (RIAA report)

Basically, the times where the record industry can hide behind declining sales are over. Everyone in the industry should know this (if not, they’re probably in denial). Selling copies of music or movies isn’t how these industries will make money. They’ll find other ways, and many already have.

All this will die soon. It’s just annoying that they’re picking death by a thousand cuts, instead of just realising their demise and calling it quits.

Icelanders abroad

To end the Memo on a high note: Last week Google shipped its new AI driven messaging app Allo. Most of the big tech media wrote about the app and how Google assistant is integrated into the messenger to assist people at the tap of a button.

Fewer might know that one of the drivers behind this product is Guðmundur Hafsteinsson, formerly of Siri (acquired by Apple) and Emu Messenger (acquired by Google). His role is Product Management Director.

Although he might not be very well known outside of Iceland’s (tiny) techy group, he’s probably one of Iceland’s most successful technologists. Acquisitions and stints following them, at both Apple and Google, are feats few (if any) Icelanders can tout.

A heartfelt congratulations from Northstack to Gummi & his team for shipping Allo!

Autodesk in Iceland closing down: Is 2016 the year of “Closing-up-shop”?

Autodesk in Iceland (previously Modio) has laid off all its employees and is closing up shop.

Modio was founded in 2014 by Hilmar Gunnarsson, and sold less than 18 months later to 3D printing giant Autodesk. The company created a smartdevice app to build 3D printable toys that was later rebranded to join the Tinkercad family as Tinkerplay.

The team in Iceland was working on a consumer 3D printer called Thingmaker with toy company Mattel set to launch this fall. The layoffs were announced in late August this year, and includes everyone in Iceland and people working on the same project in San Francisco and Toronto. Keen Reddit users have pointed out that theThingmaker website has been closed down, and pre-orders of the printer have been stopped on Amazon.

The reason I bring this up is that it’s an interesting fate. Three fairly prominent tech companies in Iceland laid off all their employees in the same year. Oz began by laying everyone off in May (in what I coined as Black Friday). Oz still has some operations and might get back on track, but it suggest turbulence anyway. Plain Vanilla announced a wind-down several weeks ago, laying off the 38 that were left at the company, and while Autodesk (Modio) hasn’t sent out a specific press release, the operations in Iceland are closing down.

Will 2015 be known as the year of unprecedented VC investment in Iceland, and 2016 the year of closing-up-shop?

The implications of Plain Vanilla’s wind down

Note: Several months ago we started writing in English, to widen our possible audience. Now we’ve finally changed to an English name: Northstack. Hope you like it! Also, this post is a part of the Northstack Memo, you can sign up here.

As you all likely know, Plain Vanilla announced last week that the company was winding down, following a cancelation of the planned TV show with NBC. I wanted to devote this Memo to discussing my thoughts on the implications this has to the Icelandic startup scene. Disclaimer: I was / am an employee of Plain Vanilla.

Press coverage of the news has been generally neutral or positive, which is good, because we as a startup community must be okay with failure. It’s also important to remember that Plain Vanilla was almost entirely funded by investors from outside the country. I can’t even begin to imagine the sh*tstorm we’d be witnessing if Icelandic VC’s funded by Icelandic pension funds (majority of Icelandic LP’s) had been majority shareholders.

And while Plain Vanilla didn’t end in a successful exit, with a group of people cashing out a healthy amount to invest back in the community, the talent that’s unleashed is substantial. What do you think will happen when ~40 highly talented, creative, entrepreneurial people lose their jobs on the same day? I can’t wait to find out.

It’s obviously in the best interest of the Icelandic startup community, Icelandic investors, and Icelandic business, that teams are formed, companies started, and new startups launched. This is perhaps one of the most important things to remember about Plain Vanilla.

Yes, Thor and the QuizUp team brought in a substantial amount of capital, that was mostly deployed in Iceland (so a lot of it became taxes and such). But the bigger point is that they decided to stay here. There was no real business reason to grow and operate Plain Vanilla in Iceland – as we can see with Tempo, who are moving chunks of their operations abroad, or CCP who are moving their executive team to London.

Several years ago, someone made a picture of the effects the Oz adventure had on the Icelandic tech scene. I can’t wait to see a similar one for Plain Vanilla.

The Memo: Study Cake, and thoughts on Startup Reykjavik investor day

First a couple of announcements:

We’re hosting an after-work meetup at Loft in two weeks.
We think there should be more opportunities for people in the tech and startup sectors to meet and connect, so we’ve decided to host a meetup. It’ll be on Friday September 2nd at Loft Hostel, between 5-8 PM. We’d love for you to come and grab a beer with us.

Also, we’re still looking for term sheets 🙏

We’ve gotten several submissions, but need more to be able to analyse the situation. If you have any, please send us 🙂 (message us).

Now, on to the Memo:

Study Cake boys quit to go study, and reveal a (potential) pink elephant in the room

A couple of weeks ago, the Study Cake team sent out an open letter detailing their decision to quit and go back to school. In the post, they discuss how an investment fund offered a 10m ISK investment, but pulled the offer “at the last minute.” They then talk about an investment for 35m ISK, which they then declined, to go back to school.

It’s not clear whether this 10m ISK investment (that got pulled) and the other one they were closing are from the same fund, but by how the team describes the fund pulling an offer at the last minute, is alarming. The Icelandic startup scene is young, and many founders are first time founders, and therefore don’t have any experience with investors and funds. But making an offer and pulling it last minute is just general bad behaviour, and should be talked about.

Now, I might be reading too much into this particular incident – I don’t know the exact details for the offer being pulled and they might very well be reasonable – but the bigger theme is that we as a community haven’t started talking openly about investor / founder interactions.

How can we as a community make sure that important things like these get discussed? Whose responsibility is it to talk about them? What can we at Norðurskautið do to help?

Startup Reykjavik investor day is upcoming

This Friday, August 26th, is Startup Reykjavik investor day. It’s similar to most other accelerator demo days / investor days in the way that the companies pitch to a group of investors, executives and stakeholders. We covered last years investor day: Overview of companies, and Comments from Linus Dahg, VC at Wellington Partners.

This will be the fifth batch to graduate from Startup Reykjavik for a total of 50 companies. A quick tally based on their website, suggests that of the 40 companies from previous years, six have gotten equity funding. A much larger percentage have received funding in the form of grants, mostly from the TDF. To my knowledge, the funding rounds have had considerable lead time – that is they raised a round a considerable amount of time after the demo day.

It will be interesting to see this year’s batch, and follow the development. Will there be a Q3 investment in a Startup Reykjavik ’16 company? What do you think? What company is most likely?

The Memo: Stripe Atlas, Iceland in international media, and investment incentives

Welcome back after Verslunarmannahelgi — hope you had a pleasant weekend.

Stripe Atlas & Startup Iceland

Some great news to start off the week – Bala of Startup Iceland announced over the weekend that Startup Iceland has become a Stripe Atlas partner. Previously, only Startup Reykjavik had access to the program through the Global Accelerator Network. As we’ve previously discussed, Stripe Atlas can be a huge asset for Icelandic startups, and Startup Iceland’s partnership makes it available to more people! Bala said in the blog post to contact him for more info.

The startup scene in international media

In the last two weeks, I’ve read three articles about the Icelandic startup scene. One good piece by Forbes, that covers a big part of what’s going on. Einar Gunnar of Arion Bank wrote an article reflecting on the changes in the startup scene. Lastly, a piece on the website Red Herring titled Iceland’s Startup Scene Punches Above Its Weight.

That last one ruffled some feathers, because it was inaccurate and misleading in parts. We wrote a short article that highlighted those points.

Once again, the “Angel incentives”

One thing mentioned when discussing the startup scene, are recent changes by the Innovation bill. The so-called “angel investor incentives,” are still mentioned as positive changes. I’ve written before, that I think these particular changes needed more thought. Several weeks ago, I quoted one angel investor:

I think this is a good change but it doesn’t go as far as EIS or SEIS does in the UK. There are two main issues I see. First, the deductions don’t apply to companies. Individuals don’t have the same tax benefits as corporations when it comes to deferring profits. Smaller investors might do this as individuals, but I think many will do it through a holding company. That means the deductions won’t be applicable to some investments. The other thing is that the rules don’t allow the investor to have a board seat in the company she’s investing in. I understand that you shouldn’t get a tax deduction when investing in your or your family’s company. But the bill doesn’t allow the investor to be a board member two years before and three years after the funding round.

Last week I was discussing this with another angel investor, whose judgment of the bill was even more damning:

With these changes, individuals — that more often than not lack the experience and insights to assess opportunity and risk — are incentivized to invest their savings into one project. That way it’s hard to spread the risk, and in most cases those savings will be lost. The bill isn’t just powerless, it’s outright irresponsible.

The reason is simple. First, the tax incentives are optimised for low amounts (minimum investment is 300K (~$2,400), maximum dedictuctible is 5m ISK ($40,000)). Second, the requirements are such that more active investors will likely have a hard time utilising the deductible.

The Memo: Coders of the Future and Technical Talent

Happy PokéMonday everyone.

Hope your Pokemon catches have been going well — mine have. Last week I traveled a bit around the country with an American friend. We both visited the Glacier Lagoon and the Golden circle, great places. Sadly, neither had any cool Pokemon’s, which was quite the disappointment. However, Iceland’s squares and public parks are full of life these days, thanks to Pokemon Go.

Pokemon part is over, on to the Memo.

Coders of the future and technical talent

I ran across an update about the newest grants from the non-profit Coders of the FutureI hadn’t heard about this initiative before and thought it was worth mentioning. The main reason is that lack of technical talent is one of the constraints of the Icelandic tech scene.

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Around Startup Iceland, I had the opportunity to talk to Mark Solon, managing partner at Techstars. His concerns were exactly these – lack of human resources. When I explained that Iceland has one of the most educated workforce in the world, he waived it away. The grees don’t matter; he was talking about developers.

This reminded me of a short piece by Jökull Sólberg, founder of Takumi. In it, he mentions digital product design as the most difficult recruitment in Reykjavik.  He also points out that there’s little education available for soon-to-be digital designers.

We as a community need to put pressure on the educational system to push technical skills. We’re obviously doing it already, just think of this as a gentle reminder.

What are you doing to foster the development of technical talent? Let me know.

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Nortstack – Reporting and analysis of the Icelandic startup scene