Category: The Memo (Page 2 of 4)

The outlook for the Icelandic startup ecosystem in 2017

A record year in startup investments in Iceland

Late last week, we published our annual funding report, summarizing the highlights in Icelandic startup and tech dealflow and funding. The highlights are the following:

  • Record in number of investments, 19 investments recorded.
  • Huge drop in total capital deployed, due to three megarounds in 2015.
  • Distribution across round sizes is very close to the distributions in the Nordics as a whole.

While our data gets more accurate every year, I think there’s a number of investments that goes below the radar, especially angel investments. Did you angel invest, or receive angel investment in 2016? Please let me know.

Overall, a great year for Iceland? Yes …

But there are some warning signs

Here are the main issues I’m currently worried about. Please let me know what you think (agree, disagree etc.) Just hit reply.

  • Fewer active Icelandic VC’s: While the Icelandic VC funds are still active, two of them are mostly depleted (Eyrir Sprotar and Frumtak 2). News from late last year of a new fund (Crowberry Capital) are promising, but they haven’t finished raising. Frumtak will probably raise their third fund as well, not sure about Eyrir. While NSA participated in follow-on rounds, they didn’t make any fresh investments – they’re basically fully deployed. In any case, if nothing changes, the only active VC fund that has money available for fresh investments will be Brunnur. (If you’re interested in a more detailed analysis of the investment funds in Iceland, reach out).
  • Few exits: 2016 had only one exit (Zymetech) which was right at the start of the year. That’s a part of a bigger trend: Iceland is lacking in success stories. A good ecosystem needs recycling of talent and capital (people to exit to start new businesses or invest in others) to thrive. NSA Ventures didn’t announce any exits last year, which further hinders them in investing in new opportunities. Frumtak I, is also due for exiting some of their companies soon.
  • I have a hunch / theory that one of Iceland’s bigger drawbacks as a startup location is the difficulty of exit. In bigger countries you have more corporations and conglomorates that have the capital and power to do acquisitions and acqui-hires. Startups that aren’t on a superstar or high-growth trajectory might opt for a soft landing or graceful exit to pay back investors, get some cash and get back in the game. Icelandic companies generally have to be interesting enough for foreign companies to buy them, because secondary market or PE activity generally hasn’t been active in the startup sphere.
  • There was only one investment in Q4 and no Icelandic investor participated. Most of the activity came in the first three quarters of the year. This may be seasonal – although in 2015 Q4 was the most active by far – but we don’t have enough data yet to confirm that.

VC investments is not the only metric that tells us whether a startup ecosystem is in good or bad health. But it is a measurement, that can be compared to measurement other places and time periods, which in turn helps in analysing the environment.

Northstack is gathering data on other metrics as well, and hopefully we’ll be able to do more analyses in the future.

Is investment in Iceland lacking in some stages of a startup’s lifecycle?

There’s regularly talk and discussion about whether Iceland is lacking in VC funding. Some suggest we lack in early stage – that’s the thesis of the Crowberry Capital founding team. Their rhetoric implies that they have interesting early stage investment options lined up, which supports that idea. To be fair, if I were raising an early stage fund, I’d probably use the same rhetoric.

Others say we lack in late stage; that companies hit a roadblock when they reach the growth stage.

We don’t know. Maybe both is true. To visualise it in some way, we decided to map rounds by sizes and compare to Nordics overall, and try answer the question with data. (Nordics data graciously provided by The Nordic Web)

q3-2016-funding-memo-001

Iceland looks similar to the Nordics, except for the drop in $0.5-1m rounds (typically early stage) and jump in $5-10m rounds (typically growth stage). Remember that this is a small data set, so take with a grain of salt. The question of where funding is most needed is still an open one.

What do you think? What do these numbers say about the state of startups in Iceland? Message me your thoughts.

This post was originally sent out as part of The Northstack Memo – our weekly newsletter with commentary and updates on the Icelandic startup and tech scene. You can sign up here.

Crowberry Capital, and the funding environment report

Innovation ministry releases report on startup financing

From the ministry’s website:

On the basis of the action plan for entrepreneurship and innovation, Initative and Progress, announced by Ragnheiður Elín Árnadóttir, minister of Industry and Commerce, in December 2015, a detailed mapping of the startup funding environment has been made. The aim is to gather information about financing options for entrepreneurs and startups, from the initial stages through growth, identify needs for improvement, and diversifying the funding resources and options offered.

First off, calling the report a “detailed mapping of the startup funding environment” is a stretch. The report gives a brief introduction to the various funds and institutions that directly support startups financially, but includes no empirical data on the funding environment (in my opinion the most important part of mapping a funding environment). The reason is simple: the data doesn’t exist. The ministry knows it – Northstack met with the minister several months ago on this exact issue. While this may sound bitter, it’s not supposed to. We’ve funded the project (thanks to our awesome sponsors) and are working on gathering the data, so that an empirical mapping of funding in Iceland can take place.

This comment is not made to disparage the work of KPMG or belittle the report. The point is simply that doing a “detailed mapping of the funding environment” absolutely has to include empirical data. It’s a disservice to the ecosystem to suggest that we can have enlightened discussions about the problems of the ecosystem without any numbers backing up our hypotheses. I applaud the effort: diagnosing the situation is critical for the creation of strategy (strategy is sadly lacking in much of government). I’m just pointing out that we should have higher demands, and expect our diagnoses to include quantitative data. In this case, it’s mostly unavailable, and hard to come by. Next time, it’ll be more easily available, which can help in defining, evaluating, and choosing actions.

The suggestions are an interesting list of ideas that could, or could not, help. The main problem is that nobody can point to the thing that needs help. Just like a doctor has a hard time suggesting treatment when the only info provided is “I’m sick”, a consultant or government agency can hardly address any ecosystem issues based on a (possibly non-existent) “funding environment” problem.

What do you think? Have you read the report? What are your initial reactions? Shoot me a message with your thoughts.

Crowberry Capital: Iceland’s first female only VC fund announced

Late last week, news broke (Northstack of course broke it) that Helga Valfells, CEO of NSA Ventures, and two of her colleagues, investment managers Hekla Arnardóttir and Jenný Ruth Hrafnsdóttir, are leaving NSA to found their own fund. Their aim is a 5bn ISK / $42m fund, focusing on early stage companies.

Some thoughts:

The move leaves Egill Másson as the only investor at NSA Ventures – other staff are the CFO and the office manager.

According to the press release, the move is in part due to the Ministry for Industry and Inovation’s aim to turn NSA Ventures into a fund of funds. That suggests that the three women are more interested in investing directly in companies than funds.

They aim to raise 5bn ISK, and according to Helga have some commitments. If they succeed in raising that amount (which is probably the bare minimum they could raise to make this work in terms of operating costs) it would mean 17.5 bn ISK (between $140-$150m) in Iceland-focused VC funds in a couple of years.

The trio is betting their livelyhoods (they’re leaving the jobs without having raised the fund) on the interest of LP’s to participate in another VC fund in the short term, and the hypotheses that Iceland has a funding funnel problem that can be solved with more cash in the long term. That it’s the lack of cash, not lack of startups with potential, that is the source of most current problems.

As far as I know, Eyrir Sprotar wasn’t planning on raising another VC fund. Frumtak, however, is likely to take a run at the third fund. Both of their funds are mostly deployed. Frumtak 1 has been completely deployed for some time (and we’ll hopefully start to see some exits soon), and Frumtak 2 has little left for fresh investments. That would mean we have two VC funds competing for capital.

Of the four classic structure VC funds in Iceland, two are all-male, one is mixed, and one will be all female. That has to be some sort of par-capita world record. Most all-female VC funds per capita in the world?

I wholeheartedly wish the trio the best of luck!

What are your thoughts on this? How do you think the LP market will respond? Will they finish raising? (I know way too little about the Icelandic LP market, sadly). Send me a message with your thoughts.

This post was originally sent out as part of The Northstack Memo – our weekly newsletter with commentary and updates on the Icelandic startup and tech scene. You can sign up here.

Will CCP be Iceland’s first unicorn?

A huge news story (or rumour) for the Icelandic tech industry dropped just before the weekend. Bloomberg reports:

“CCP hf, the Icelandic game developer that created the cult classic Eve Online game, is exploring strategic options including a sale of the business after receiving interest from potential bidders, according to people with knowledge of the matter.

The closely held company’s owners […] are discussing whether or not to proceed with a sale. A sale of CCP could value the business at as much as 900 million euros ($955 million), the people said.”

There are points to be made about this:

  • I reached out to CCP for comment on various things related to this, and their line is “CCP doesn’t comment on rumours.”
  • VC fund NEA (and others) invested $30m in CCP last year at a rumoured $300m valuation. That would mean a 3x return in a year, pretty decent for an almost 20 year old company.
  • Novator Partners – one of the biggest shareholders – have been buying CCP stock from current and former employees. The going price has been around $23, according to several sources. Rumors followed, that a sale of CCP was the end goal of these stock purchases, and the Bloomberg story supports that. It’s all but certain that people won’t be selling their stock anymore at that price (if there are any small shareholders left).
  • The €900m valuation is mostly based on CCP’s VR efforts. Any regular valuation based on the company’s core business today wouldn’t come close to that price tag.
  • The valuation is great news for Iceland’s fledgling VR plays, and VR in general. It sends the message that someone is willing to pay top dollar for VR ambitions. which increases VR’s viability.
  • In the last year, the company has shipped two VR games: Gunjack on mobile & PS4, and Valkyrie on PC and Playstation. Both relatively successful – Gunjack is often touted as the world’s most sold VR game – and Valkyrie came with Oculus preorders. Now, the most sold VR game is most likely measured in hundreds-of-thousands of copies, not millions. Hilmar Veigar, CCP’s CEO, has said publicly that the company’s VR efforts have already broke even. No numbers have been released about the total number of games sold [all I’ve found is this tweet, retweeted by Hilmar Veigar, which says number is at “more than 500,000 copies”], which usually isn’t a good sign. CCP has, however, established itself as a leader in VR content creation.
  • This acquisition would be the biggest (I think, correct me if I’m wrong) in Icelandic tech history. Period. It’s silly, but I’m partly annoyed that it hasn’t crossed the $1bn mark (for headline purposes). Also, a unicorn exit would totally establish Iceland as the world champion of per capita – Iceland’s per capita unicorns would be off the charts 🙂
  • The “people with knowledge of the matter” in the Bloomberg story are most definitely leaking this strategically. What their strategy is, remains to be seen, motives could include raising interest to raise price.
  • Any discussion about the impact on CCP’s Iceland operation would be highly hypothetical. What we know is that CCP is building a new HQ close to the University of Iceland. We also know that most of CCP’s VR development is outside of Iceland. Gunjack is developed in Shanghai, Valkyrie in Newcastle, and Project Arena in Atlanta.

The company has remained publicly silent, but I would guess that some internal communication has taken place. In any case, these next weeks will be interesting, and rest assured, we’ll be following up on this.

The somewhat clickbait-y subject of this edition was “Will CCP be Iceland’s first unicorn” – and I haven’t answered that question. I personally think it could very well be; the news hopefully spark interest among other potential acquirers, sparking a bidding war, resulting in a higher sale price. Also: we could always calculate the sale price at this summer’s exchange rate, which would make €900m translate to more than $1bn 🙃.

This post was originally sent out as The Northstack Memo, our weekly newsletter with commentary on the Icelandic tech and startup scene. Subscribe here.

Slush highlights, and why Iceland needs Slush Play

Slush Highlights

I’ve never been to Slush (or Helsinki) before, so everything was new. The first thing I noticed was the sheer size of everything: 17 thousand attendees, endless side events, enormous production value in everything. The size of the event allows for exceptional speakers (Chris Sacca, for example), and droves of investors, startups, and media. The talks covered a wide ranging subject; from cultured meat, to government and startups. There’s certainly something for everyone at Slush.

But the size is also the biggest drawback. The amount of speakers means a smorgasbord of topics, but also doesn’t allow for the depth of talks and discussion a focused event does. When a keynote speaker takes a couple of minutes to explain what machine learning is, you can rest assured that the talk wont go exceptionally deep.

That doesn’t mean the content is bad. It just means that the type of content is more introductory – a spark to investigate further. My two favorite topics were foodtech, companies that are changing how we consume proteins, and mini satellites. Both of the topics I will investigate further, and Slush was a big part of sparking that interest.

Why we must keep Slush Play going

This brings me to the main point of this post. My trip to Slush further convinced me that we (the tech community in Iceland) should absolutely make sure that Slush Play happens next year. There are several reasons for this.

  • First of all, people outside of Iceland are starting to reference it as a hub for VR activity – at least one speaker on the main stage of Slush referenced that.
  • Second, we need events like those to put Iceland on the map, bring media and investors to meet the scene, and build up an international presence. The full potential of an event like Slush Play won’t be realised until it’s been run several times – there are now two under the belt. Let’s get that to five at least.
  • Third, I think Slush Play is important is the focus. While Slush in Helsinki can afford having a wide focus, a fledgling event needs the focus to attract the top speakers and investors to participate.

So, please keep the bigger picture in mind when the Slush Play team comes knocking, asking for help 🙂

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. (mbl.is)

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. (Althingi.is)

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?

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Nortstack – Reporting and analysis of the Icelandic startup scene