The Memo: Analysing the Funding Report

I’ll start of by apologizing for the lack of Memo’s in the last two weeks! I was away in the north west of Iceland, with no access to internet. We held our first book club last week. It was pretty good — I’ll post a key take-aways post later this week. You can join the Facebook group here.

Now, on to the Memo.

Last week we published the third quarterly funding report for Iceland. Compared to both the previous two quarters we’ve analysed, and the trend in the Nordics, the numbers are bleak. I have some thoughts on what might be affecting these changes.

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Q4/2015 and Q1/2016 were anomalies

Iceland had been starved of venture capital for some time when the three VC funds were annonced. Following that, startups that were due or overdue for funding finally got investment. We might be looking at a correction.

Compared to the Nordic region, our percentage of deployed capital and number of investments is dropping (Note: big thanks to Neil of The Nordic Web for these numbers). We’re still above our population percantage though — Iceland is about 1,3% of the Nordics population. Last quarter Iceland had ~2% of investments, and ~1% of deployed capital.

The quarters before, we were abnormally high. In Q4/’15 Iceland’s share of invested capital was 12,5%. In Q1/’16 our share of deployed capital dropped to 3,7%. Substantially lower than before, but still almost 3x our population share.

One insightful comment on the report was by Neil Murray of The Nordic Web. He said that “four investments would’ve been a strong quarter [for Iceland] two years ago.” His point suggests that we’re looking at a correction.

Lack of foreign investment

This passing quarter was unlike the two previous quarters, that both had relatively large investments from foreign investors. NEA’s $30m investment in CCP and Glu Mobile’s convertible note issued to Plain Vanilla gave Q4/15 and Q1/16 a good boost, respectively.

This time around, the biggest investment was Icelandic, and although we did see some foreign activity (foreign angels participated in 3Z’s $400K seed round) it wasn’t at the scale we saw earlier.

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Iceland is one of those places where big chunks of the society slow down during summer. Investments might be a part of this slow down. We don’t have data for previous Q2’s, which makes us unable to corraborate this theory.

Lack of available capital

While I’ve written previously that we might be heading into VC problems (part one,part two), the funds still have almost $20m available that we expect will be used in fresh investments. The problems I foresee won’t materialise for several more quarters. Therefore, I highly doubt that lack of capital was in issue.

Why do you think we saw this drop in investments? Is there something I’m missing? Send me a message and share your thoughts. Full anonymity if you want.