Innovation, Startups and Venture Capital in Iceland

The Technology Development Fund Needs Refactoring

Yesterday the Icelandic Technology Development Fund announced what projects would receive grants in 2016. The TDF is funded by tax money and operated by Rannís, the Icelandic Centre for Research. It has been an integral part of early stage funding of companies, and many of Iceland’s most prominent technology companies have received grants from the institution at some point in their lifetime.

Kristinn Árni L Hróbjartsson

Kristinn Árni L Hróbjartsson

Yesterday’s list of 48 grantees includes a wide range of projects, from boot-strapped startups, to recently funded companies such as Sólfar, to university based research projects. (Sólfar is on the list for a Project Grant, typically $100,000 per year for up to 3 years. Sólfar announced a €2 million funding round 4 weeks ago.)

Interestingly, some of the companies don’t match the expected profile of companies needing grants. Instead they represent a regular member of the receivers of TDF grants: big, profitable companies, that seemingly should be able to fund their own R&D.

It sounds a bit strange, that Iceland’s biggest funder of early stage innovation and technology approved a grant to Hampiðjan, a multinational company started in year 1934 (not a typo) that reported €7.7 million in profits in 2014.

Similarly, this year a grant was provided to MS Icelandic Dairies. The company is a de-facto monopoly of milk products (we’ve heard horror stories and had resolutions and fines from the Icelandic Competition Authority on that company’s behaviour) a similar grant.

Both are project grants – usually around $100,000 per year for up to 3 years.

In 2012, Marel (publicly traded as MARL with a current ISK 183 billion (~$1.4 bn)), received around $170,000 for R&D. The same year, Matís, a government owned company (.ohf) received a 3 year project grant. That company is up to 30% funded by the Ministry for Industry and Innovation. (Matís has received grants from the TDF in 2013 and 2014 as well).

The reason for this is simple. The Technology Development Fund’s purpose is to fund technology development and research. These allocations are therefore (to my knowledge) according to its stated purpose and operating guidelines.

Is that however, what we want, and what the small but growing entrepreneurial, innovative community in Iceland, needs?

The Fund’s stated purpose is to “support research and development activities, which aim towards innovation in Icelandic industry.” It is broad and vague, and maybe purposefully so, to enable the fund to grant funding to a big variety of project. I think, however, that this purpose needs revisiting.

The Ministry for Industry and Innovation is today announcing its action plan to help entrepreneurs and startups. One of the likely big actions is increasing the funds available to TDF by ISK 975 million (~$7.5 million), bringing the total amount available for the year 2016 to ISK 2,347 million. That’s almost doubling the budget for grants.

Are we sure that this version of TDF is what we want, need and should have?

I believe, that before we start shovelling these massive amounts of cash into TDF, we should zoom out and think: Is there maybe a better way to do this?

My thoughts are the following.

First of all, I think it’s utterly ridiculous that tax-payer money is being used to fund the research of big, multinational, profit bearing private companies. This could be addressed in the fund’s rules.

Secondly, I think the fund’s focus should be made clearer. Funding everything from research in universities to the development of computer games is a very broad focus. The fund could be split up to adapt the application and selection process to each of these cases.

Thirdly, instead of adding this money to a fund that gives out grants, we should look into whether a matching scheme could work, similar to Israel’s Yozma, which matched VC investments coming into Israel.

The Icelandic startup scene is most definitely growing. We need to make sure that the support system grows with it, in the right direction.

Kristinn is a co-founder of Norðurskautið. He’s on Twitter as @kiddiarni.

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