Launching Norðurskautið Research & Reports

Today we’re launching a new section, Norðurskautið Research & Reports. The purpose of this new section is to collect in one place all the research and reports that we work on here at Norðurskautið, such as our quarterly funding reports.

To start off this new section we’re announcing a report on the status of Icelandic ICT startups that Startup Europe Partnership (SEP) is releasing today. The report was written by Mind the Bridge (MtB) and mainly built on data from Norðurskautið and it focuses on companies that have raised a minimum of $1 million in venture funding, dubbed scaleups in the report.

“Iceland shows 5 scaleups every 100 thousand people, the highest number we found in Europe thus far”, commented Alberto Onetti, Mind the Bridge Chairman and SEP Coordinator, “and 1.3% of the GDP has been invested into Icelandic scaleups via venture capital: a number that is a lot higher than any other European country.”

The following are the main takeaways from the report:

  • There are more companies that have reached the minimum funding to be classified as scaleups (>$1M) per capita in Iceland than elsewhere in Europe.
  • Venture capital funding in ratio to GDP in Iceland is the highest in the Nordics, according to MtB.
  • In the last five years, 15 companies have reach the size scaleup, and have raised a combined of $200M in funding (roughly 26 billion ISK).
  • 4 companies were acquired during the five-year period, including Clara, Modio and Datamarket. Two companies were acquired by US firms, one by a Swedish firm and another by a Chinese company.

Head over to our Research & Reports section to download the full report and make sure to check in there regularly for other reports and research by Norðurskautið.

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The Memo: Comments from an Angel and thoughts about Startup Iceland

Another week, another Memo. First, a couple of announcements.

We have a new team member at Norðurskautið. Her name is Guðbjörg Rist, an engineer from Chalmers, and she will be leading our efforts into research and reporting. If you’re interested in reports or research about the Icelandic startup scene, send her a line and she can help you.

We’re starting a book club. A group of people from the Slack-group ( decided to form a book-club. We’ve created a Facebook group for it (here). Our first book is The Power of Habit by Charles Duhigg. We expect to meet and discuss it by the end of June. It will most likely at Watchbox’s office (they’ve volunteered to be the first hosts!). You can join the FB or Slack groups to participate.

Now, on to the Memo.

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Last week I wrote about the Innovation bill. I asked for some feedback on the angel-investment deductions, and got some good discussions out of it. The following is a summary of a discussion I had with an experienced angel investor in the community:

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.

I hadn’t thought about the tax benefits. Understandable, because I’m not an angel investor. These concerns by the investor sound general, in a way that active angels would have the same concerns. It will effectively bar active angels that invest through holding companies, or groups of angels that use a special purpose vehicle to invest. Which makes me want to re-iterate a point I made in the last Memo:

One thing caught my interest. The economic affairs and trade committee didn’t receive commentary on this from known angel investors. Neither oral nor verbal – at least not according to official records.

Barring investors from joining the boards of companies is strange. Many startups that receive investment from angels might benefit more from the angels’ contributions to their business, than their cash.

Looking at these incentives, it paints a picture of tax breaks meant for, or used by, inexperienced, small-time investors. A low minimum limit (300K ISK / ~$2,300), sub-optimal options when utilising the deductions, and restrictions to taking board seats, makes me afraid that it won’t benefit active, professional investors. I’m not calling it dead or useless, but I don’t have high hopes for the effectiveness, based on how the changes are implemented.

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Startup Iceland was two weeks ago. The event is the biggest in the Icelandic Startup scene. Well produced, speakers from all over the world and much anticipated. I’ve attended twice — this year and last. Many I’ve talked to in the days after the event mentioned that they missed seeing prominent figures from the Icelandic startup scene. And when Startup Reykjavik announced their 2016 batch and “half of the room stood up. I started thinking, where are all the startup people?” one attendee noted.

My question is What happened? In 2015, the Icelandic scene had the biggest funding year ever, with more startups funded than before. Startups are getting more attention and interest is high (just like in many other places). Yet, it felt like there were fewer attendees than before. How come only a part of community showed up?

Did you go to Startup Iceland? Why / Why not? Why didn’t more people show up? Shoot me an email with your thoughts, I’ll keep things off-the-record or anonymous if you want.

Note: I’m going on vacation for a week, so there won’t be a Memo next Monday.

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The Memo: The Innovation Bill

I didn’t send out a Memo last Monday. I attended Startup Iceland and didn’t have time to write one. Sorry about that. Also, I’ll be doing two this week, so expect another one on Wednesday or Thursday. On to the Memo.

Althingi passed the Innovation Bill last week. Bjarni’s bill, that he introduced earlier this year after some good ol’ lobbying by SI and others, eases tax burden on startups. It also tries to incentivize startup investment by individuals (angels) with tax deduction. Let’s look at it step by step.

Employee Stock options are now taxed at sale. This is a huge change that results in a more favorable taxation of stock options in Iceland than in Silicon Valley. TechCrunch did an article about these issues titled Handcuffed to Uber in April. I’m happy about these changes.

Convertible bonds got a similar treatment as ESO’s. No longer do investors need to pay taxes on “gains” when they convert their bond into equity. These changes make convertible notes a real option in financing.

Foreign specialists get a special tax discount. In general, I don’t like this, but I can understand the companies that benefit from this option. I hope that in the long term, our schools produce enough talent to employ at startups. And I hope that in the long term, expats coming to Iceland come here for the country, culture and great companies that we’ve built.

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A rise in the R&D tax return ceiling is a part of the new law. Companies can now get up to a 300m ISK refund for R&D, up from 100m ISK before. It’s a similar tax break as in Canada, France, England and elsewhere. Except it’s way lower. The economic affairs and trade committee covered this in their changes. They decided not to raise the refund even more (they got a suggestion to remove the ceiling completely), with the following rationale:

By removing the ceiling of R&D tax refunds, the refund would rather benefit companies that have left seed and growth stages and are listed on exchanges. That’s not the purpose of the bill, but to support R&D at smaller companies in Iceland. (full text here)

It’s fair. The bill’s purpose is to support and help startups. But that’s missing the big picture. The companies that look to refunds like these to make investment decisions are the big ones. Companies like Tempo, that is most likely investing in Canada instead of Iceland. Or CCP, that can invest their fresh $30m in any of their studios where R&D refunds are more generous.

The Icelandic startup community needs these companies to invest in Iceland. And we need the government to incentivize that. We need a healthy community of older tech companies that can hire and train our local talent. Those create spin-out effects, like Oz in the day, and CCP has on game development and VR. If the Icelandic government can do things to ensure these companies invest in Iceland, it should.

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Last but not least, the bill introduces a tax deduction for angel investors. The bill gives a tax deduction for up to 50% of investments that are at least 300k (~$2,300). The maximum refund per year is for a 10m ISK investment (~$77,000), so a total deduction of 5m ISK. This means, if you invest for 10m ISK, you can deduct 5m ISK from your tax base (income and financial gains combined). Companies need to fulfil a long list of stuff to be eligible. I hope that fulfilling those things will be electronic and easy, otherwise this might get stuck in bureaucracy hell. One thing caught my interest. The economic affairs and trade committee didn’t receive commentary on this from known angel investors. Neither oral nor verbal – at least not according to official records. Which I find strange. Are you an angel investor? What do you think about these changes? Let me – thanks.

That’s it for now. Until next time.



“Innovation bill” passed in parliament

Yesterday, June 2nd 2016, Alþingi (the Icelandic Parliament) passed a bill dubbed the Innovation bill. The bill, which we’ve previously covered, introduces various reforms to the tax code to lessen the tax burden on startups and their employees.

The highlights of the bill (as it was introduced) are the following. We’ve added changes made to the bill during its discussion in the economic affairs and trade committee:

  1. The ministry proposes a change in taxation of both stock-options and convertible bonds. Both of these financial instruments will be taxed at the realisation of profit, rather than at the date of exercise.
    1. The taxation of stock options is now more lenient in Iceland than in Silicon Valley. Nice!
  2. A tax-break for foreign specialists is proposed, in effect giving foreigners that move to Iceland (and fulfil several criteria) a 25% tax break – i.e. only 75% of their income will be taxed.
  3. A tax-break for equity investments in small companies for individuals –tax-breaks for angel investors.
    1. Minimum investment to be eligible for a tax deduction is  300,000 ISK (~$2,300).
    2. The deduction is 50% of the first 3 million ISK (~$23,000)
  4. Increased tax-refund for company R&D investments.
    1. The committee was urged by some to remove the roof (i.e. a x% refund of R&D investments, with no maximum, just like it’s done in the movie industry in Iceland). After deliberation the committee decided not to increase the roof of the refund, as the bill is aimed at startups and not companies in general.

In general, good news for the startup economy. More commentary in Monday’s Memo. Sign up here.

Photo by mightymightymatze


“This is the year of hackathons in Europe”

Last Sunday a Ultrahack 2016 kick-off meeting was held here in Reykjavík – the first of many events where this year’s Ultrahack will be presented to local startup ecosystems across Europe. We took the chance and met with Mikko Järvilehto, Co-founder and CEO of Ultrahack, to discuss what Ultrahack is all about.

This is the second year that Mikko, Mark Ryan, Ultrahack’s CTO, and their team hold Ultrahack. Last year Ultrahack consisted of a series of kick-off meetings and hackathons held all over Finland, culminating in the Ultrahack finals which were held at Slush in Helsinki last November. Contestants gathered from all over the world, which prompted Mikko and his team to expand this year’s format to cover the whole of Europe.

Mikko has seen a sharp increase in interest and the number of hackathons being set up all around Europe. “This is the year of hackathons in Europe”, Mikko tells us. But Ultrahack’s format is quite different from what one would consider to be a traditional hackathon. Instead of having teams try to get as far as possible in the development of their idea over a weekend, Ultrahack chains together various events in a competition that lasts roughly half a year from start to finish.

Mikko Järvilehto presenting Ultrahack at the kick-off last Sunday

Mikko Järvilehto presenting Ultrahack at the kick-off last Sunday. Photo courtesy of Startup Iceland.

This year’s Ultrahack will be centered around 10 different tracks – themes, if you will. These tracks will be unveiled at a series of events and hackathons across Europe during the next 3 months. The first track, a FinTech challenge in cooperation with OP bank in Finland, was unveiled at the kick-off meeting last Sunday – just in time for Arion Bank’s FinTech party next weekend.

Mikko and his team are launching Ultrahack 2016 today at the Arctic 15 conference in Helsinki. This means that teams can now register for Ultrahack 2016 through the “Ultrahack OS” platform. Individuals looking for teammates can also register, since the Ultrahack team will be working hard on matching people together to create new teams that can work together to bring their ideas to life. “We want to welcome everybody” says Mikko, emphasizing that Ultrahack is open to everyone, not only those who have a technical background and can write code. Everyone with a can-do attitude can join regardless of their background.

This is something that seems very important for Mikko. He stresses the importance of bringing together participants from different backgrounds – students, startups and corporations alike. Ultrahack supports this by helping people network through matchmaking and similar activities.

Mikko is currently doing his Ph.d. on how innovation tournaments can be used for innovation management and he has big ideas for the future. It’s his view that innovation competitions and hackathons can serve an important role in accelerating innovation, but more importantly they are useful in bringing people together. “Contests aren’t about winning, but bringing people together”, Mikko adds.

From August 1st and leading up to the Ultrahack finals at Slush in the end of November is a period the Ultrahack team calls the “Pregame”. During this period teams should work on their ideas and code and post their results through the Ultrahack OS platform. The teams with the best projects are selected to go on to the finals at Slush in Helsinki, where the winners are selected.

CrankWheel receiving an Ultrahack travel grant. Photo courtesy of Startup Iceland.

CrankWheel receiving a Ultrahack travel grant. Photo courtesy of Startup Iceland.

The Ultrahack team has a strong focus on trying to link the participating teams with investors and accelerators, so it shouldn’t come as a surprise that the main prize is a EUR 100.00 investment, with extra cash prices being given out as well. Further, the Ultrahack team hands out numerous travel grants for teams to get to the finals and Slush in November. The first travel grant was awarded to CrankWheel at the Startup Iceland conference last Monday and another grant will be given to the winner of the Arion Bank FinTech party hackathon.

It will be really interesting to see the ideas start flowing into the Ultrahack OS platform and we are of course hoping to see many Icelandic teams at the finals in Finland.

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