Iceland: the emerging tech-ecosystem of the Nordics

An overlooked part of the Nordic tech-ecosystem

The Nordics have a stellar reputation as the home to several of tech’s largest outcomes of the past two decades. Many companies, with which most of us have direct or indirect interactions on a near-daily basis, trace their roots back to this region. Examples include Spotify, Klarna, and Unity.

While Sweden has traditionally taken the spotlight, Denmark, Finland, Norway, and even Iceland (although it tends to receive less attention) have also produced their fair share of success stories.

I've had the opportunity to visit Iceland multiple times, including attending Iceland Innovation Week and the accompanying climate-tech conference, OK Bye, named after the late glacier, Okjökull.

Okjökull recently lost its glacier status as it no longer possesses the necessary thickness to move, which, as I learned, is a defining characteristic of glaciers (glaciers are defined as slowly moving masses or rivers of ice formed by the accumulation and compaction of snow on mountains or near the poles).

Geographically, Iceland is conveniently located just five hours away from NYC and three hours from London. Considering its position in the north Atlantic, Iceland could potentially benefit from the anticipated rise in electric flight since transatlantic journeys will likely require a stopover, at least initially. Sheep freely roam the hillsides, and natural geothermal baths are scattered across the island. Iceland is also home to lots of "love refugees," tourists who found love during their trips to Iceland and never left.

The energy and enthusiasm among founders and VCs in Iceland is vibrant, yet it feels as though the rest of the world overlooks the Icelandic startup ecosystem.

In terms of VC funding raised per capita, Iceland ranked second in Europe in 2022 (see below). But, as some have pointed out, this isn’t necessarily a stat to lead with given that of the countries listed, Iceland has the smallest population with approximately 370,000 inhabitants.

Source: Dealroom

Some notes:

• In 2021, Icelandic venture funds raised over $308 million, a significant increase from $40 million in 2017 and $115 million in 2015. Numerous new companies are emerging, and the ecosystem is becoming increasingly organized to support the growth of pre-seed and seed-stage startups.

• Only a few locally based traditional early-stage venture funds exist. Among these funds, some of which have yet to raise more than two funds, between 59% and 98% of the LP capital comes from local pension funds. This LP composition would be quite unusual for young firms in the United States.

• The government plays an active role in supporting ecosystem growth through various initiatives. One recent example is the launch of Kría Ventures, a state-backed VC fund-of-fund that invests in local early-stage VC funds. They have committed to investing several tens of millions of USD by 2025.

• Energy and climate were hot-topics at the conferences. Iceland stands as a global leader in renewable energy, with 100% of its electricity grid relying on renewable resources (geothermal and hydro being the main sources). Although Iceland does not import electricity, it does import fossil fuels for transportation and other purposes. In 2016, around 15% of Iceland's energy consumption depended on imported energy.

• Last year, Davíð Helgason, the founder of Unity (a gaming engine startup that went public and is now valued at around $11B), and his team launched Transition Labs. The primary goal of Transition Labs is to attract climate-focused startups and projects, providing them with streamlined processes for permitting, legal matters, and more, allowing them to deploy, test, and scale their solutions in Iceland. They achieve this by developing the necessary infrastructure and collaborating closely with local institutions and regulators.

• For Icelandic companies looking to expand internationally, Denmark has traditionally been the obvious choice due to its proximity, connectivity to Iceland, and the existing strong ties between the two countries. However, with the rise of digital companies, this trend seems to be shifting as more Icelandic companies now set their sights on the US market. The rationale behind this shift lies in the fact that the incremental effort required to enter the first international market remains relatively consistent regardless of the destination. Also, the US market offers a significantly higher return on investment due to its size and the widespread use of English in multiple countries.