Page 2 of 34

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.

Takumi raises $4m Series B to expand US office

Influencer marketing platform Takumi just announced a $4m (£3m) Series B round from UK and US angels and investment funds. The company raised a $4m Series A round in May 2017. The company was founded in 2015 by Guðmundur Eggertsson, Jökull Sólberg og Mats Stigzelius. It has over 40 employees with offices in Reykjavik, Berlin, London and New York.

“We will use the funding to grow our development team in Reykjavik and fuel continued growth in the US market,” commented CEO and co-founder Jökull Sólberg.

As a UK headquartered company, Takumi has benefited from the UK enterprise investment scheme when raising funds. Under the scheme, individual investors are incentivised to invest in new and innovative – and therefore riskier – companies. “Having our head office and parent company in London has been very beneficial for us due to this program,” Jökull told Northstack. “The UK has a good blueprint for how to create a good startup ecosystem.”

The company started by focusing on the UK and German markets, and launched a NYC satellite office in 2017, a late entrant there. “Our tech and commercial presence in Europe is mature. We intend to use the new funds to expedite our US plans.”

The three year old company has worked with more than 800 brands and 15.000 influencers. “Takumi is already the leader in influencer marketing in Germany and the UK, the biggest advertising markets in Europe.”

Takumi connects brands and influencers on Instagram, a market that according to eMarketer doubled in 2017.

“Influencer marketing gets held to a higher standard as budgets grow” explains Jökull. “Consumers are wary of influencers working with the wrong brands, and brands are becoming aware of influencers with fake audiences. But we’ve seen that when it’s done right, and influencers have authentic audiences to sell in to brands it’s the most underpriced major marketing channel today and can have a major impact.”

Takumi is also announcing a new partnership with HypeAuditor, an influencer data vendor that is being integrated into influencer vetting and campaign reporting to bolster audience insights and further ensure that audiences are organic and not filled with bot accounts, a practice that is common in Instagram influencer marketing.

In the second quarter of this year, Takumi started working with Heinz and Gillette, and was nominated for the Digiday awards Best use of Social for their collaboration with Kellogg’s.

“Our focus on a superior influencer experience, and distributed sales teams close to the customer, has proven successful,” Jökull said. “The brands want excellent service and the influencers want a great app and trust to do their work. That is what Takumi stands for, and we believe will be the basis for our continued success in the US market.”

Just One Click: Car Parts, Instantaneous Orders and a Late-night Email to Jeff Bezos

The company started with a basic idea: help businesses streamline and automate their sales processes. The usual administrative headaches ensued. Late one evening, in a fit of bleary desperation, a cofounder concocted an email to Jeff Bezos, Amazon’s CEO and the world’s richest man. And that’s when things started taking off for Clicksale, a small IoT startup based on the outskirts of Reykjavík.

Bjarni Ingimar Júlíusson, Clicksale’s CEO, has long been involved in information technology. His family owns Stilling, a company that has sold spare automotive parts in Iceland for almost 60 years, and Bjarni worked on a first-of-its-kind platform whereby vehicle owners could find all the parts they needed simply by entering their license plate number online.

But Bjarni soon encountered a problem: placing orders for products was far from efficient. Automobile shops often had a glut of general car-related materials but were often lacking in specific car parts. Furthermore, too much time was spent on ordering parts and waiting several days for them to arrive.

Why not allow mechanics to order parts immediately and have them delivered within the hour? Bjarni wondered.

So, in 2017, he formed Clicksale with Árni Jónsson, the first developer at Plain Vanilla Games, makers of the wildly successful trivia game QuizUp. The company ordered several Amazon Dash Buttons, which are physical pads a client can press to order prespecified products instantaneously over WiFi.

“We essentially hijacked the delivery system,” says Bjarni.

Clicksale wasn’t just buying up a bunch of buttons and redistributing them, however. The startup wanted to plug the gaps in Amazon’s system.

“What Amazon does is actually quite limited: they have this physical button that connects to the internet,” says Bjarni. “The purchaser have to do a lot of heavy lifting: connect it, program it, use the Amazon cloud. We created a cloud service for companies to implement this easily and also developed an app to deploy this service within a few seconds.”

Why not make the Internet of Things more accessible and intuitive? The only trouble was, ordering Dash buttons in bulk wound up being more cumbersome than the cofounders had anticipated.

“It’s almost like they don’t want you to order it,” says Bjarni. “We were getting really frustrated.”

It was only then that he considered writing to the founder of the world’s largest online marketplace and a man whose net worth was recently pegged by Forbes at nearly $140 billion: Jeff Bezos himself.

“It was kind of a moonshot idea,” Bjarni admits.

He fired off the email right before he went to sleep, and by the next morning he already had a reply from one of the corporation’s vice presidents. That executive invited the Clicksale cofounders to re:Invent, a massive annual developers’ conference sponsored by Amazon, where the Icelanders met the Dash Button team and ultimately resolved their ordering issue.

One question remained: did Jeff Bezos actually see Bjarni’s email?

The answer was unclear. Amazon staff simply said his email had had been forwarded to the director of their department.

“I don‘t know if Jeff Bezos personally forwarded the email or his team did, but it really paid off,” says Bjarni.

Today, Clicksale is focusing on expanding beyond the automotive sector and developing a platform for the optimization of all kinds of product sales. “We’re not a company that replaces your whole IT system,” says Bjarni. “We have small solutions you can hook into your existing infrastructure.”

By focusing solely on software and programming development, Clicksale hopes to respond nimbly to marketplace changes and hone its swift online ordering model. The startup is also partnering with Sigma, a Swedish technology company, to develop their own physical ordering device that would be more tailored to Clicksale’s needs than the Amazon Dash Button.

In the end, Clicksale’s vision is one that could restructure businesses’ purchases and free up a lot of time and creative energy as well.

“We think these repetitive processes—which currently tie down the market—can be automated,” says Bjarni.

VR startup Aldin raises $1m led by Crowberry Capital, Announces New VR Product

Aldin, the virtual reality company behind Waltz of the Wizard, just announced a $1m funding round led by Crowberry Capital with participation from Investa. In addition to the funding, the company announced a new VR experience aimed at consumers.

“Believable reality experiences are unlike anything that’s been possible in the past, offering the accessibility of movies and interactivity beyond conventional games,” says Hrafn Th. Thorisson, CEO and co-founder of Aldin. “Since nothing can play on our emotions like reality, believable virtual realities are set to become the most emotionally engaging format in entertainment history.”

Aldin’s previously made several VR apps, including Waltz of the Wizard, a VR experience where people experience having magical powers. To date, it is one of the highest rated VR titles on Steam with over 250,000 users. Their next title, whose name hasn’t been announced yet, will let users step into a fantastical world and become acquainted with a character in ways that, according to their press release, could only happen in VR, powered by XR AI systems that help form personal connections with characters beyond what’s possible with screenbound entertainment.

“We are delighted to be investing in Aldin. The company has proprietary technology to further the development of VR and AR.” said Helga Valfells, Managing Partner of Crowberry Capital who will take a seat on the board of directors. “The Aldin team has an intuitive understanding of VR as a medium as well the right mix of creative talent and technology skills to deliver exciting content in alternative realities.”

Over the years, Aldin has built proprietary tooling and mixed reality (XR) technologies they use to power their own production. Among those are Ghostline, an analytics solution that enables quantitative and qualitative analysis of the user experience. and Telepath, a locomotion system designed to offer engaging movement in VR.

“We’ve been at the forefront of VR since 2013, focusing on content and technologies that bring immersion and presence to the level that justifies VR and gives people a reason to want it.” commented Gunnar Steinn Valgardsson, CTO & co-founder of Aldin, “We’re now at the next frontier and we are going to deliver experiences that place users in worlds that are only possible in VR.”

Better Boats: An Icelandic Startup Sets a New Course for the Shipping Industry

The global shipping industry is a sprawling network of companies with a presence on every continent save Antarctica, responsible for delivering around 90 percent of the world’s goods. Its vessels move massive amounts of raw materials across national boundaries, shaping the ocean into a highway for trade. However, the industry is highly pollutive and grossly inefficient: air pollution from shipping leads to 50,000 premature deaths per year in Europe alone, according to the nonprofit Centre for Energy, Environment and Health. Maritime shipping is also a key driver of global warming. The industry is so vast and complex it seems impossible to change. But that’s exactly what a small Icelandic startup aims to do.

Enter the fray Ankeri, founded in 2016 by childhood friends Kristinn Aspelund and Leifur A. Kristjánsson. Engineers by training, they recognized a need for creating a shipping marketplace that rewards efficient, low-emissions vessels.

“We identified a problem in shipping management that hasn’t been solved,” says Kristinn, who also cofounded marine performance company Marorka in 2002. “The [industry’s] focus is more or less on the shipowners. But their customers pay for fuel. We wanted owners and charterers to examine fuel performance together and try to improve it.”

Thus Ankeri was born—an online platform that weaves real-time data, weather reports and performance metrics into one interface. Designed to increase transparency by utilizing available data, the technology carries the potential for partnerships across various parties in the shipping industry.

“Owners can share past performance of the ships and charterers can find the most suitable vessel for their trade,” says Kristinn.

But tackling emissions and energy consumption in the maritime world is no small order: there are over 50,000 cargo ships across the globe. Ankeri hopes to start small and gradually build partnerships, picking up steam as the model spreads. Already this year, the company has deployed a prototype to use with its first customer.

Kristinn notes that the service will expose shipping informatics normally left “under the hood” but which have an outsized impact on fuel efficiency, including engine maintenance and ship design. And the startup’s effort may very well dovetail with new environmental regulations: the International Maritime Organization (IMO) declared in early April it would slash emissions in half by 2050 (compared to 2008 levels).

Ankeri, only one among numerous Reykjavík-based startups, may be entering the market at a crucial moment for global shipping.

By founding a startup rather than going a more traditional business route, Kristinn says he’s been able to quickly see ideas into fruition. “The first few weeks, when there are no rules, anything is possible—there is complete freedom,” he says. “There are no shareholders, customers or employees. It’s just two co-founders with a piece of paper.”

But Ankeri has already taken off. Whereas the shipping industry is historically slow-moving, Ankeri can be agile and push the industry to innovate.

Kristinn also notes that, with the local startup scene booming, it is relatively easy to gain access to business leaders, clients and the broader innovative community. “We’re beginning to accept that, here in Iceland, people are creating solutions for the whole world,” he says.

Indie game studio Tasty Rook releases Out of the Loop, a “silly party game for the whole family”

The indie game studio Tasty Rook, which previously created and published Triple Agent, released its second game last week: Out of the Loop. The game is available for Android and iOS.

“We’ve both played board games our whole lives,” said Sig Gunnarsson, co-founder of Tasty Rook, “and we started Tasty Rook to bring some of those fun and intimate experiences into a more compact and mobile format.”

The duo, which founded Tasty Rook last year and has since received a grant from the Technology Development Fund, focuses on re-imagining classic party board games for mobile devices.

“We want to foster community and playing between friends face to face,” Torfi Ásgeirsson, co-founder commented. “So many mobile games today are single player only, and we see an opportunity to utilise the technology to enrich real life encounters.”

In Out of the Loop, everyone, except for one player, gets to know the same secret word at the beginning of a round. The goal of the game is to answer lighthearted questions about the secret word without giving it away, while trying to figure out who doesn’t know the secret word. The game is played on one mobile device that is passed between players.

The game is free to play but players can purchase additional content in the app.

The NSA Ventures report: Missing data, depth, and doesn’t address the key questions

Three weeks ago, the Ministry for Industry and Innovation (ANR) released a report on the operations and future of NSA Ventures. The report was written by a working group on the matter announced at the fund’s annual meeting last year.

I, and possibly others in the ecosystem, were looking forward to reading the report, which was originally scheduled for late September last year. The funding environment, and ecosystem as a whole, has changed massively in the last several years. (To emphasize, in a recent chat about the ecosystem with a friend who’s been doing this for a long time, he pointed out: “The fact that we’re discussing the ecosystem is a massive step forward from when I was starting out”).

Roughly a year ago at the 2017 annual meeting of NSA Ventures, the Minister for Industry and Innovation, Þórdís Kolbrún, announced a working group to review and propose “well reasoned” changes to the purpose of the fund. The working group was made up of two former board members of the fund, three ministry employees and a strategy professional from a tech company.

Sadly, the overall report was a let down, both in terms of quality of work and lack of critical questioning. Comments, analysis, and discussions in the report suggest that the working group lacked experience with both founding or operating startups and startup investments. No data, outside financial review of NSA, was used to underpin the report. Similarly, no experts or stakeholders were interviewed, and the – in my opinion – big questions around the fund weren’t raised or addressed.

The good

I think it’s important to acknowledge the good points that the report makes, which to me are mainly two points.

First, the group discovered in their work that only looking at NSA Ventures in a vacuum wouldn’t do any good, and therefore suggest a bigger review of the innovation ecosystem in Iceland. It calls for a clear strategy for the Icelandic support system for startups and a unified ecosystem, with clear goals and success metrics, which I applaud. And the Ministry has already, not only because of this report, but it probably helped, announced five project groups that will together create a holistic innovation strategy for the country.

Second, they discuss the need for the Icelandic government to attract high tech companies to the country to enrich the R&D ecosystem in Iceland, using methods such as tax incentives and rebates, as well as easy access for foreign specialists.

Both of these points are in my opinion critical. Sadly, the discussion about NSA Ventures wasn’t this good.

Some background

The future of the fund has been a topic of discussion for a long time. In fact, I wrote one of my longest posts ever on the future of the fund last year, following the minister’s announcement of a working group.

In the last several years there were two big changes in the ecosystem for NSA Ventures. Firstly, in the last five years the number of privately run early stage VC funds went from zero to four. Secondly, the fund – partly due to its evergreen nature – has up until the recent Greenqloud and Valka exits been unable to invest in new companies because it hasn’t had the capital.

This is an important point, because the purpose of the fund has been to finance early stage startup companies, mainly due to a market failure: the lack of access to early stage financing in Iceland.

With private VC funds and an increase in early stage investments from foreign investors, the question should be whether the market failure the fund was founded to address is still there. That question was neither raised, nor answered, in the report.

Now on to the discussion of the report.

Lack of knowledge, data, and expert opinion

Overall, the discussion in the report suggests a lack of knowledge about the sector and understanding of venture capital and startup operations. In addition, use of data to support the report’s findings and discussion of financing landscape developments in the last five years is nonexistent.

The only people the group interviewed was the staff of NSA who all started working at the fund last year with no prior experience with venture investing. No data on investments in Iceland or current access to capital is referenced. No other investors, neither Icelandic VC’s, Icelandic angel investors nor foreign investors, or startup founders were interviewed.

I contacted the ministry for comment which replied with the following statement:

“The working group was composed of specialists in the fields that are connected to the operations of NSA Ventures. The ministry concluded that the group had much breadth and knowledge of the operations and operational environment of the fund, and was well equipped to analyse and assess the options available for the future of the fund.”

Furthermore, on the lack of data, analysis and interaction with the VC or startup community, the ministry commented: “The ministry hired management consultant firm Strategía to analyse how the future operations of the fund should be, both in terms of operations, and in terms of allocation of assets.”

To rearticulate my criticism: My point is not that the individuals in the group lack the ability to contribute to this discussion, but more on the overall composition of the group. The group included no investors or people with venture investment backgrounds (aside from former board members of NSA Ventures), no founders or employees of startups, or direct stakeholders in the ecosystem, nor did the group interview any professional investors, analysts, founders er startup employees or other direct stakeholders in the ecosystem (aside from NSA Ventures employees).

The funding environment

The report briefly discusses the funding environment with regards to other funds. This part is partly factually wrong and partly suggests a lack of understanding of the mechanics of VC investing.

One of the statements in the report is that “it is evidence for the need [of early stage financing funds] that three of the four funds [started since 2015] have already invested all of their capital.” (pg. 5)

This is wrong. Frumtak II, Brunnur and Crowberry all still have capital to invest. Frumtak has stopped doing fresh investments, but a big part of the business model behind VC funds is following up on the more successful companies. Brunnur and Crowberry both still have capital available for new investments.

In addition, last year was the most active in early stage investments in Iceland, ever. Which highly suggests that the market failure NSA was created to solve (i.e. lack of access to capital for early stage companies) is not relevant any more.

The report then goes on to discuss private equity funds (pg. 6), in a somewhat confusing chapter that doesn’t make much sense in the context. It acknowledges the Technology Development Fund as an active participant in the early stage funding environment, but never mentions the host of foreign VC funds that have invested in Iceland in the last years or the angel investment community.

Later in the report, the summarisation of the funding environment is depicted as follows:

“With a stronger Research fund and Technology Development Fund the environment for entrepreneurs has changed as access to funding for the first stages of innovation has increased. After the grants, there are however few options in spite of the addition of new funds. NSA is one of those funds, but it hasn’t been able to invest much over the last years, in addition to the limited capital of other funds. Thus, the gap between grants and early stage investments has grown bigger.” (pg. 7)

This analysis is, in my opinion, wrong, and suggests a lack of knowledge about the Icelandic ecosystem.

  • First of all, now that we no longer have capital controls, entrepreneurs have much more options in terms of early stage funding than before (which Northstack’s data supports).
  • Second, in spite of NSA being strapped for cash and unable to invest, the last three years have been very active in terms of early stage investing, both because of Icelandic VC’s participating, because a much more active angel community in Iceland, and because Icelandic entrepreneurs are fetching foreign seed money.
  • Third, the Technology Development Fund has recently started awarding much bigger grants for shorter time periods (eg. 50m or 70m over two years), which borders on being a seed investment. Which means the gap hasn’t grown bigger, but smaller.

Where is the discussion of the real questions?

With all the above being said, my main issue with the report is the complete lack of discussion about the future set up of the fund and fundamental questions about its purpose and contribution to the ecosystem. When our minister Þórdís announced the working group, she said that the group should make “well reasoned suggestions on the future set up of the fund.” The following questions; what I hoped would be discussed and opined on, were nowhere to be found:

  • Is the market failure the fund has been focused on fixing still an issue today?
    When the working group was started, the minister mentioned that the fund was originally created to counter a market failure in access to early stage capital. Today, we have four private VC funds focused on early stage companies, increased early stage investment activity from foreign investors, and the number of early stage investments has been steadily growing for the last years (last year was the best ever).
  • Is it the role of the government to compete with private firms, or should it support and accelerate the overall environment?
    In today’s environment, we have four VC funds investing in early stage, and one evergreen government backed fund. In the early stage startup market, funds compete – among other things – on the price of money (how much equity the fund gets in exchange for their cash). NSA Ventures is now, for the first time, an active participant in a competitive market, i.e. the government is competing with private firms. The main difference is that – unlike in private VC funds – the investors at NSA Ventures do not have skin in the game (i.e. their own money in the fund, their compensation directly linked to outcomes of the fund, or their job security connected to the performance of the fund) which makes it easier to give discounts.
  • Why does it seem to be hard for NSA to exit their investments and recycle their capital?
    The report correctly states that many of the companies have been in the fund’s portfolio for a long time (the average “lifetime” in the portfolio is nine years with seven companies having been in the portfolio for more than ten years). However, the report doesn’t raise any questions on why. For anyone with knowledge of VC mechanics, a 9 year average portfolio lifetime is very high, especially when you appreciate the fact that most VC funds operate on a 7-10 year horizon.
  • Should the way NSA Ventures appoints members of the board, which is based on lobbyist and stakeholder institutions, remain the same?
    Lastly, the fund’s board, which has a very important say in all investment decisions, is appointed – by law – by lobby groups. That means the board is usually made up of professional lobbyists or board members of lobby groups that often lack experience in technology, software, investing, or business.

The startup ecosystem has come a long way in the last several years. At the same time, politics have become increasingly interested in innovation and the knowledge economy. This leads to a will to make things better, shown through legal acts, committees, and panels discussing meaningful changes for the ecosystem.

While we’ve come a long way, there are still opportunities for it to become better generally, and the government’s participation to be more focused and effective specifically. Especially when it comes to utilising data to drive analysis and decisions, and asking experts to participate in policy making.

Although this report was a letdown, I’m hopeful that the new Innovation Policy Committee’s will be sourced with subject matter experts, both living here and abroad (some of our best people leave the country, but that doesn’t mean we shouldn’t ask them to help).

Because if we’re investing time and money in making the startup ecosystem better, the people and companies of the ecosystem – the reason why we’re trying to make the ecosystem better – should be a part of the discussion.

[Disclaimer: Kiddi recently started working for a company where NSA Ventures is a shareholder]

This post is a part of the Memo, a regular commentary and analysis newsletter by Kiddi, founder of Northstack. You can sign up here.

Page 2 of 34

Nortstack – Reporting and analysis of the Icelandic startup scene