With fewer than 400,000 inhabitants, Iceland receives more than its fair share of tourists — and of venture capital. Both are good reasons to pay attention to what’s going on and coming out of this unique island nation.
“We need more pillars to our economy,” Áslaug Arna Sigurbjörnsdóttir, Iceland’s Minister of Higher Education, Science and Innovation, recently told TechCrunch at Iceland Innovation Week in Reykjavík.
Some diversification is already underway, and the country’s export revenues from IP-driven industries have been rising steadily. But more than being its own pillar, Icelandic innovation ties into what’s already there: Startups are building tech to help the country make the most of its resources and economic activities — fisheries and heavy industry top that list, but they’re also marketing the local talent and culture.
However, it is hard to infer trends from meager data on the handful of startup deals that are done in Iceland each year. Here’s what you need to know about the types of startups that have taken root and are flourishing in the island nation:
It’s telling that medtech company Kerecis, which uses fish skin for novel wound dressings is from Iceland: Innovation here often looks to unexpected places for inspiration.
Products from the ocean have branched into high-end cosmetics, as did foodtech, new materials, and more. While it wasn’t obvious even to Icelanders that fish skin or algae could be repurposed in so many ways, rising support for the circular economy has brought focus back on sustainability. That’s what one startup accelerator run by KLAK – Icelandic Startups is targeting.
One big source of inspiration for companies in the country is the past. Especially when it comes to fintech — the sector has little to do with the country’s natural resources and more with its history. “I think that the force behind companies such as [neobank] indó is lessons learned from the [2008] banking crisis. And same with Monerium,” said Gunnlaugur Jónsson, CEO of Reykjavik Fintech Cluster, an association that aims to nurture the country’s fintech companies.
There are more lessons to draw, according to Bjarni Gaukur Sigurdsson. His new company, Blikk, is working on an account-to-account payments platform, as an alternative to credit cards, to help reduce payment processing costs. It’s got a security angle, too, since it helps its customers stop being overly reliant on platforms that could be compromised.
But all that innovation would be wasted without support. Thankfully, entrepreneurs here have a good ecosystem to contribute and learn from as they build.
Besides venture capital and accelerators, the country’s startups can get funding through programs like Horizon Europe, a nice addition to the national grants also distributed by Rannís, the Icelandic Centre for Research.
DTE, for instance, is a beneficiary of a grant from the European Innovation Council to bring more efficient processes to the country’s huge aluminum industry.
But funding isn’t the only thing a startup needs to grow. Talent makes companies, which is why so many startups flock to downtown Reykjavík, the center of Iceland’s cultural, economic and governance activity. The area is home to co-working spaces and entrepreneurial hubs like Hafnar.haus, which provides a co-working space as well as rentable studios for those with a creative bent.
Iceland is known for its talent in the creative fields, and this propensity has bled into its tech scene as well. Companies like Genki, Overtune and Treble have built tech for music production, composition and even acoustics simulation. Gaming is big, too, and Iceland is home to popular gaming company, CCP Games, the studio behind the popular MMORPG EVE Online.
CCP Games’ presence has been an inspiration for many Icelanders to start building games, Porcelain Fortress CEO Ingolfur Aevarsson told TechCrunch.
“Having a big brother like CCP in the neighborhood really opened up the eyes of people [to the fact] that we could actually make games,” Aevarsson said. “But Iceland has a very strong roots in writing our sagas and all of these kinds of story building.”
Porcelain Fortress is based out of Innovation House, a co-working space set up by Opera and Vivaldi founder Jon Stephenson von Tetzchner. It is also home to Heima, a platform that helps families manage and share household chores, PayAnalytics, a pay equity and workforce analytics provider, and many more startups.
Once startups get bigger and better funded, though, some move on to Gróska (a word “growth” in Icelandic), a modern space in the middle of Reykjavík Science City. This new district is also home to the University of Iceland Science Park.
Still, there are limitations inherent to a country with a small population: Once they reach a certain size, Icelandic startups often have to look abroad to find AI talent or executives with experience in scaling.
Startups from Iceland that have forayed abroad include Nasdaq-listed eye care company Oculis; Prescriby, an opioid addiction prevention company that recently raised €2 million to expand in Canada and enter the U.S.; Sidekick Health, whose digital care platform has gained traction across Europe and the U.S.; and Avo, which became the first Icelandic startup to join Y Combinator in 2019.
Some companies go global immediately, while others prefer to cut their teeth locally first. Crowberry Capital’s founding partner, Jenny Ruth Hrafnsdottir, has a word of warning for the latter: Because Iceland is a country where most people are just a phone call or an introduction away, it can make startups overconfident about a go-to-market strategy that won’t fly in larger markets.
Still, the ease with which some things can get done in Iceland makes it a good testing ground for foreign companies, especially when they can also leverage its natural assets. It also helps that validation in Iceland can often apply to Europe: Iceland is not part of the EU, but it belongs to the European Economic Area (EEA), with extensive legislative overlap.
Iceland has long held a strategic geographical spot worth securing, but the theme is experiencing tailwinds anew when it comes to startups — bug bounty program Defend Iceland last year received a $2.6 million grant from the European Commission as part of the Digital Europe plan.
And the fact that NATO Innovation Fund (NIF) also co-hosted an event during Iceland Innovation Week underscores how much attention Iceland is receiving.
Iceland rarely makes the list of top countries by global investment, but that’s mostly because the startup scene here is only just taking off. In a panel at the event, NIF partner Chris O’Connor noted that Iceland’s venture capital ecosystem is quite new, with most firms only deploying their first or second funds.
He has a point: With the exception of state-owned New Business Venture Fund, funds like Crowberry, Brunnur Ventures, Eyrir Venture Management and Frumtak Ventures were born this century, if not this decade (Iðunn).
It is too early to say which companies or funds will benefit from NIF’s €1 billion fund, but Iceland is on the list of potential recipients as one of its 24 LPs. One tech company, wind turbine manufacturer Icewind, is already part of the first cohort of NATO-backed accelerator DIANA. The trend will be worth tracking.
Strategically, but also economically and culturally, once-isolated Iceland is now more of a crossroads.
As a Nordic country, it has a lot of common ground with Scandinavia (both have a strong gaming industry), and with the Baltics (fintech and tech for governments). It is also natural for its tech companies to look at larger markets early on. That’s likely a good thing for its startups and emerging venture capital scene. For the rest of us, it means we can get used to hearing about Iceland and its talent.
Disclosure: Anna Heim traveled to Iceland on an invitation from Business Iceland on behalf of Reykjavík Science City.