Innovation, Startups and Venture Capital in Iceland

Staying Strong: The 2021 Icelandic Funding Analysis

January, that wonderful time of the year when we can look back at 2021 and dissect the funding landscape for Icelandic startups and VC’s.

If you want to look at previous reports you can find them here.

When we look at 2021 we see a clear shift back to early stage investment. While we labeled 2020 as the Year of Icelandic Growth Round, those growth rounds disappeared again in 2021. Instead, a large proportion of the investments that year were early stage. This was predictable as the four major VC’s, Brunnur, Crowberry Capital, Eyrir and Frumtak closed new funds and investment bank Kvika entered the scene with Iðunn.

Funding rounds stay steady

Overall, we tracked 25 deals, which aligns with the lay of the land since 2015 (when the VC funds started) – 25 plus/minus deals tracked per year. Question is whether next year we’ll see a big increase, as we have more funds, and those funds have more cash, than ever before.

A booming fourth quarter follows a quiet third

We try to see if there’s any seasonality in the investments, but haven’t found it (although we’ve been looking for more than five years). That is most likely due to the small sample size. Although there’s no real seasonality to report, we see that Q3 was quiet this year, followed by a very active Q4.

The same is true when we look at the distribution between halves. The quiet Q3 in 2021 explains the difference that year but looking further back the number of deals made each half of the year is quite evenly distributed. The only potential pattern one can see, is that some years, the first half of the year is more active than the latter half.

More than $150m deployed, the second year in a row

Last year, we broke the $100m “ceiling” for the first time (not counting monster rounds). This year we did it again, reaching more than $160m deployed throughout the year. That means two years in a row with more than $150m in startup investments.

Increasing amounts of capital deployed, while the number of rounds remain steady, means more money per investment, which is in line with a growing and maturing ecosystem. Later stage companies raise bigger checks.

Fewer late stage rounds, but larger seed investments

As stated above, this year lacked growth rounds compared to 2020. However, if we look further back in time, 2021 is a strong year for the Icelandic startup scene with a dozen or so startup raising their first round of institutional financing and roughly as many raising follow-on funding.

The average funding round that we tracked as the first institutional money into a company was $2.3m in 2021, compared to $1.1 in 2020, a very meaningful increase, which suggests that the Icelandic ecosystem is maturing or following a bigger global trend.

Foreigners love Iceland, and startups from Iceland

Over the past few years we’ve seen a continuous increase in foreign capital flowing into the Icelandic startup scene. Around half of the deals include foreign participation, but around 90% of the cash has foreign participation. Foreign investors are bullish on Icelandic innovation!

Following a lovely exchange on LinkedIn, discussing an article called Going Beyond 2%”, we decided to backfill and report on the gender mix of the founding teams. We’ve commented before that investing in startups is a very gender-equal trade in Iceland, but receiving investment isn’t. 

Now, we don’t know why — there are a bunch of potential reasons. Is there a lack of women founded startups? Is there a bias in how startup founders are evaluated, either conscious or unconscious. In any case, the numbers are abysmal. Zero women-only teams received investment, and only three of the 25 investments we tracked had mixed gender teams. We will track and report on this going forward.

NOTE: After an article in Viðskiptablaðið about the 2021 funding report appeared this morning Frumtak reached out to let us know that Tulipop had received additional investment in 2021. Tulipop is an all-female founding team but the round was not announced so did not appear in our data until now.

Nevertheless, one investment out of 26 into an all-female founding team does little to balance the scales in a wider perspective.

Notes on method and data

  • We report on investments that are reported or public knowledge, and time them based on the official announcement dates (i.e. press releases). This is to maintain integrity between different platforms and years.
  • We only count investments into companies that have operations in Iceland (i.e. if Icelandic VC’s invest in companies that are fully abroad, we don’t count those in this report; nor do we track investments into Icelander founded companies that are located abroad).
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