For a country whose entire financial system fell apart during the global recession, Iceland’s startup scene is looking remarkably robust, especially given that the sector only really began to establish itself after the 2008 financial crisis.
Yet in eight short years, the island famous for its volcanoes and Viking invasion, and since Euro2016, its soccer team, has established three accelerators, secured over $100 million of local institutional funding, and achieved a handful of meaningful exits, generating tremendous momentum within the island’s business community.
The $6.8million acquisition of CLARA by Jive Software in 2013 started the ball rolling, followed by Novamatics acquiring a 90% majority shareholding in gaming specialist Betware, and last year’s acquisition of Modio 3D by Autodesk.
On the investment front, in 2013 Plain Vanilla Games, developer of mobile trivia game QuizUp secured funding of $22 million from Tencent Holdings and Sequoia Capital and other international VCs, while more recently CCP Games, maker of the hugely successful multiplayer online roleplaying game Eve Online, raised $30 million from Novator and NEA to develop a VR version of the game.
How has such a small island, home to just 330,000 people achieved such a feat? According to Bala Kamallakharan, founder of Startup Iceland, its diminutive size has helped put it on the global start-up map.
He says: “Geographically it is a country the size of a small town, where everybody knows everybody else, and that is a huge differentiator when it comes to building a startup. Icelanders are entrepreneurial by nature, so starting up and trying out new things and failing is accepted. The entire financial system failed, but Iceland was able to rebuild it and has been growing for the past five years.”
However it is a shift in attitudes towards entrepreneurship that has been truly instrumental in Iceland’s flourishing startup sector. Salome Gudmundsdottir, CEO of Icelandic Startups says: “Ten years ago, becoming an entrepreneur was considered a bit quirky in Iceland. Now it’s a different story. Successful startups have become role models for the younger generation, and becoming an entrepreneur is considered an eligible career path.
“Universities have also played a big role here by putting emphasis on the importance of innovation and the entrepreneurial mindset, by teaching and training students on how to start their own businesses and by systematically bridging the gap between academia and industry.”
Also on the plus side is the fact that it is considered relatively easy to start a business in Iceland, with early stage support considered strong and easily accessible. The past few years have seen the emerge of several co-working spaces, specific startup media, tax incentives being put in place, increased contribution from the government into research and development, new VC funds being raised, as well as increased attention and activity from international VCs and media.
“Iceland is also quite tech savvy, and has been considered an excellent test market for product-market fit,” adds Gudmundsdottir. “Strong focus and expertise on renewable energy, fisheries, and more recently gaming and virtual reality development, and health and biotech make Iceland an especially desirable place to start a business within those industries.”
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A recent Nordic Web report showed that investment in Icelandic companies, including tech startups, grew by 1,568% between 2014 and 2015.
Icelandic VR startups in particular have piqued VC interest. Promising startups include Solfar Studios. Founded in 2014 by three industry veterans of online games and virtual reality, Solfar grabbed global attention with the demo of their Everest VR experience, allowing the player to virtually climb the world’s highest mountain. To date the company has received $2.6million in funding.
Radiant Games is on a mission to get children coding by focusing on the entertainment value of an educational game called Box Island. Last year it received a $300,000 grant from the Technology Development Fund, and is now starting to raise their first round of funding.
Activity Stream is a business streamlining application that turns underutilised business data into actionable intelligence and insights. Founded in 2013, the business recently closed an investment round of $2.2million, and the focus is now on building their team and international expansion.
Arguably the biggest barrier to investment, the sharp depreciation of the currency in 2008, appears to have subsided. Jenný Ruth Hrafnsdóttir, investment manager at NSA Ventures, says: “Now that the crisis is behind us the currency has been very stable for the past four years. Still, it takes time for investors to build their trust in the market and I feel we are just there now, maximizing foreign VC investments last year.
“VCs also have to understand that broad and deep knowledge within sales and marketing on major markets is not something many Icelandic startups possess and some companies may need support in building this expertise. On the other hand we have highly skilled programmers and engineers and very creative teams. Other VCs are now also looking towards Iceland and we have brought some in to syndicate with us.”
Last year three new VC funds were announced in Iceland with investment capacity of approximately $90million, dramatically changing the country’s startup funding landscape.
Gudmundsdottir says: “With the growth of the Icelandic startup scene and better funding opportunities, we have evidently seen more funding activity at seed and A stage recently, and an increase in interest from international VCs and angels.”
Whether it’s because of the ‘global first’ thinking so typical among island natives, or the ‘survival of the fittest’ mentality that ensured post-crash recovery, Iceland has come in from the cold and is building a hotbed of world class startups.