We might run into VC problems in the next years
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The Memo #2

Weekly commentary on the Icelandic startup scene

Last week we posted the last of three analysis into the activity of the Icelandic VC funds that all closed in 2015.

Two funds, Brunnur and Frumtak, have a considerable amount available to startups. Based on the rate of investment until now, I expect them to be deployed in the next 2-3 years. The third, Eyrir Sprotar, is mostly deployed.

For the funding environment to continue growing we need a fund raised in the meantime. Based on comments from a VC I recently spoke to about this, that might be harder than it used to. Let's break it down.

We need someone to raise a fund in the next 2-3 years

VC funds usually work in cycles of 10 years. Five years of investing and five years following up & exits. Eyrir is transitioning to the follow up and exit phase, while Brunnur and Frumtak 2 have investments left. I expect them to finish their investments in the next 2-3 years, around 2018/2019. Before that happens, we need a new fund that keeps the momentum going. 

Raising funds became harder this year

On January 1st 2016, special exemptions for pension funds that allowed them to own up to 20% in a SLHF ran its course. Without the exemption, they can only own 15% of a given fund. That small drop means GP's need more pension funds on board than before to raise a fund. That's bad, because in Iceland, pension funds are the biggest pool of investors in venture capital.

One of the VC's I've discussed the issue with, said it would be "very hard, if not impossible" to raise a new fund.

Removal of the capital controls might change everything

If politicians fulfil their promise of lifting the capital controls, Iceland might catch a break. Foreign VC's that wouldn't invest here before, might be willing to do so. When that happens, I hope we'll have a seed fund in place or in the making. 

A seed fund would help make startups ready for Series A, and bring an alternative to the early stage funding environment.

If you liked this email, please share it on Facebook or Twitter or tweet at me directly at @kiddiarni. If you have an idea or tip, send me a one.

In other news:

Eyrir Sprotar is almost fully deployed, with $17.2m invested in 10 companies.
Vivaldi, Jon von Tetzchner's browser, launched in April. It needs 5 million active users to turn a profit

The Startup Iceland conference ison May 30th. Tickets. The organisers are hosting weekly events until then – here's a list.

You can nominate a startup to Vaxtarsprotinn until April 25th.

Last week, Studycake introduced a subscription model to their reading app.
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