Innovation, Startups and Venture Capital in Iceland

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.

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