Iceland has a population of fewer than 400,000, but is experiencing a greater-than-expected influx of tourists and venture capital — both reasons to keep an eye on what's happening and emerging in this unique island nation.
“We need more pillars in our economy,” Iceland's Minister of Higher Education, Science and Innovation, Áslaug Arna Sigurbjörnsdóttir, told TechCrunch recently at Iceland Innovation Week in Reykjavik.
Diversification is already underway, with export revenues from IP-driven industries steadily increasing. But innovation in Iceland is not just a pillar in its own right, it is also linked to existing ones: Startups are building technology to make the most of the country's resources and economic activities (fishing and heavy industry top that list), but also marketing local talent and culture.
But it's hard to infer trends from the sparse data on startup deals that happen in Iceland each year. Here's what you need to know about the types of startups that are taking root and thriving in the island nation.
It's instructive that Kerecis, the medical technology company that uses fish skin for a novel wound dressing, is an Icelandic company. Icelandic innovation often finds inspiration in unexpected places.
Seafood has made its way into luxury cosmetics, as well as food tech and new materials. It wasn't obvious even to Icelanders that fish skin and algae could be reused for various purposes, but with growing support for the circular economy, there is renewed focus on sustainability. That's the goal of KLAK – Icelandic Startups, a startup accelerator.
For companies in the country, a big source of inspiration is the past. When it comes to fintech in particular, the sector has less to do with the country's natural resources and more to do with its history. “I think the force behind these companies is [neobank] India [2008] “It's a banking crisis. It's the same with Monerium,” said Gunnlaugur Jonsson, CEO of Reykjavik Fintech Cluster, an organisation that aims to develop fintech companies in the country.
There are still lessons to be learned, according to Bjarni Gákur Sigurðsson. His new company, Blikk, is working on developing an account-to-account payments platform to replace credit cards and help reduce payment processing costs. The platform also has a security perspective, helping to prevent customers from becoming overly reliant on a platform that could be compromised.
But without support, all this innovation would go to waste. Thankfully, entrepreneurs here have a great ecosystem to contribute to and learn from as they build.
Besides venture capitalists and accelerators, Icelandic startups can access funding through programs such as Horizon Europe, as well as state grants distributed by the Icelandic research centre Rannis.
DTE, for example, is the beneficiary of a grant from the European Innovation Council to bring more efficient processes to the country's huge aluminium industry.
But it's not just money that startups need to thrive. It's talent that builds companies. That's why so many of them are concentrated in downtown Reykjavik, the cultural, economic and governmental hub of Iceland. The area is home to co-working spaces and entrepreneurial hubs like Hafnar.haus, which offers co-working spaces and rental studios for creatively-minded people.
Iceland is known for its creative talent, and this trend has permeated into the tech industry. Companies like Genki, Overtune, and Treble have pioneered technology in music production, composition, and even sound simulation. The gaming industry is also thriving, and Iceland is home to popular gaming company CCP Games, the studio behind the hit MMORPG EVE Online.
CCP Games has inspired many Icelanders to get into game development, Porcelain Fortress CEO Ingolfur Aevarsson told TechCrunch.
“Having a Big Brother like the CCP in your neighborhood really opened people's eyes. [to the fact] “I couldn't believe we could actually make a game out of it,” Aeverson says, “but Iceland has very strong roots in saga writing and story-building of any kind.”
Porcelain Fortress is based in Innovation House, a co-working space founded by Opera and Vivaldi founder Jon Stephenson von Tetzchner, which is also home to Heima, a platform that helps families manage and share household chores, pay equity and workforce analytics provider PayAnalytics, and many other startups.
But as startups get bigger and better funded, some are moving into Gråska (meaning “growth” in Icelandic), a modern space in the heart of Reykjavik Science City, a new neighborhood that also houses the University of Iceland Science Park.
Still, being in a small country has its own limitations: Once Icelandic startups reach a certain size, they often have to look abroad to find AI talent and executives with the experience to scale.
Icelandic startups that have expanded abroad include Oculis, a Nasdaq-listed eye care company; Prescribby, an opioid addiction prevention company that recently raised €2 million to expand in Canada and enter the US; Sidekick Health, whose digital care platform is gaining popularity in Europe and the US; and Avbo, which became the first Icelandic startup to join Y Combinator in 2019.
Some companies go global right away, while others prefer to gain local experience first. Jenny Ruth Hrafnsdottir, founding partner at Crowberry Capital, warns against the latter: Because Iceland is a country where most people are just a phone call or introduction away, startups can become overconfident about their go-to-market strategies that don't work in larger markets.
Still, some things are easier in Iceland, making it a good testing ground for foreign companies, especially if they can also tap into its natural resources. Another benefit is that what Iceland tests often applies to Europe: Although Iceland is not in the EU, it is in the European Economic Area (EEA), where there is extensive overlapping legislation.
Iceland has long held a strategic geographic position worth securing, but the theme is getting a new boost when it comes to startups: Last year, bug bounty program Defend Iceland received a $2.6 million grant from the European Commission as part of the Digital Europe initiative.
The fact that the NATO Innovation Fund (NIF) also co-hosted an event during Iceland Innovation Week also highlights how much attention Iceland is getting.
Iceland rarely features among the top countries for global investment, but that's mainly because the country's startup scene is just getting started. Speaking on a panel at the event, NIF partner Chris O'Connor noted that Iceland's venture capital ecosystem is very new, with most companies only raising their first or second round of funding.
He has a point: apart from the state-run New Business Ventures Fund, funds like Crowberry, Brunur Ventures, Eilil Venture Management and Hrumtak Ventures have emerged in this century, or even this decade (Iðunn).
It is too early to say which companies and funds will benefit from the NIF's €1 billion endowment, but Iceland is on the list of potential recipients as one of 24 LPs. A tech company called wind turbine manufacturer Icewind has already joined the first batch of NATO-backed accelerator DIANA. This will be worth keeping an eye on.
Once isolated, Iceland now finds itself at a crossroads, not just strategically, but economically and culturally.
As a Nordic country, Iceland has a lot in common with Scandinavian countries (both with thriving gaming industries) and the Baltic states (fintech and government tech). And it's only natural that Icelandic tech companies will have their sights set on bigger markets early on. This could be a good thing for Iceland's startup and emerging venture capital industry. For us commoners, it means we can get used to hearing about Iceland and its talent.
Disclosure: Anna Heim visited Iceland at the invitation of Business Iceland on behalf of Reykjavik Science City.