Trophy Fishing in Iceland
The surprising exit market in Iceland
by Heath Cardie, CFA and Lauren Wilson
Iceland is well known as the safest and greenest country in the world (with some world class fishing), but do those factors make a country a good place to invest private capital? If you invest in Iceland, can you get your money out? Do you just see big fish in the water, or can you get them into your net? More specifically, what is the exit market for companies in Iceland?
This is a frequent and valid question we’ve heard from investors considering an investment in Icelandic private funds. To answer these questions, New Iceland Advisors did a first ever deep dive into the exits coming out of Iceland based on industry interviews, Icelandic media coverage and database records.
Research summary:
• Larger exits/more exits: compared to the US, Iceland has larger exits on average, and they are more frequent (proportionally)
• Small but mighty: In the past 4 years (2020-2023) there have been at least 18 exits resulting in $8.0 billion in deal value
• Location matters: because Iceland is in between Europe and the US; most exits were through a foreign acquisition from the US or Europe (67%)
Private capital exits in Iceland 2020-2023
Research Methodology
Iceland’s venture capital and private equity fund industry has been growing but is still under the radar of limited partners. Strategic acquirers and sponsors have been buying companies in Iceland for years, but this has gone unnoticed by fund investors outside of Iceland.
Iceland is not being tracked well by the industry databases and there are no US institutional investors invested in Icelandic funds. Consequently, there is no database in the US or Iceland that follows all Icelandic private capital deals. Pitchbook has 180 Icelandic companies in its database , but very little deal information is tracked because the Icelandic private funds don’t have foreign LPs to populate a database. For example, Pitchbook had partial deal information on only 10 of the 18 exits done in Iceland in the past 4 years .
Our research started with the 10 deals listed in Pitchbook in the last 4 years that contained at least some information. From there, more research was done regarding deal specifics including valuations, deal size, media coverage in Iceland and abroad about the company and the acquirer, and interviews with professionals in the venture capital and private equity industry. We found 8 more deals that weren’t included in the Pitchbook database but were well known in Iceland. Fortunately, Iceland is a small country (population 382,000 ) and when a company is sold or publicly listed, it’s a major event.
Profiles of Exits
Analyzing the 18 exits in the past 4 years, it becomes apparent that the companies who were bought or had a public listing are diversified by investor type, industry, and method of exit.
Investment type: the exits by size have been an even mix of venture capital (52%) and private equity (48%) companies. Of the 18 exits, 10 were from private equity and 8 were from venture capital.
Exit location: Iceland’s geographic location between the US and Europe has allowed it to selectively exit to acquirers on both continents. 14 of the 18 exits have been through acquisition with most buyers located in the US and Europe.
When asked about Iceland’s location as it is related to exits, Helga Valfells, a founding partner of venture capital firm Crowberry Capital, said “…Iceland is not only the geographic midpoint between Europe and the US, but also a cultural mid-point. Iceland is part of the European Economic Area and has European style legislation and strong trade ties with its European neighbors however, many Icelanders move to the United States for their education and early careers and see firsthand passion and drive needed to build a global tech business.”
Exit method: like the rest of the world, most of the exits were through acquisition (14/18) but the remaining 4 were through public listings in Iceland and the US. Since the NASDAQ Iceland and First North listed exchanges in Iceland are active, even smaller companies were able to exit through IPO in Iceland.
Industry diversification: with the highest percentage of renewable power used in the world and a highly educated work force, Iceland has always excelled in technology. Accordingly, most of the largest exits have come from the technology sector and have included medical technology, biotech, information technology, data centers and software.
Hold Time & Year of Exit
The average venture capital backed company was held for 7.6 years from initial outside funding to exit and went through an average of 4.2 funding rounds. Conversely, the average hold time for a private equity backed company was shorter at 4.5 years.
Iceland vs. the United States
Iceland punches above its weight in private company exits. Iceland had 18 private company exits in the past 4 years (2020-2023) representing a cumulative deal value of $8.0 billion. During the same time, the US had $3,061.1 billion in cumulative deal value from 11,518 exits.
While the gross domestic product (GDP) per capita of the US and Iceland are very similar, ($76,330 US/$73,470 Iceland ), the population and total GDP of the US is approximately 900 times as large as Iceland (US population is 872x Iceland and US GDP is 906x Iceland )
Iceland has a higher proportion of exits through acquisition vs. public listing when compared to the US. 73.0% of Iceland’s exits are through acquisition and 27.0% are through public listing based on deal value . The US has had 57.7% of exits through acquisition and 42.3% through public listing for the same period.
Looking back while looking ahead
When we finished most of the article, we reached out to some of the leaders in the private capital space in Iceland to help us interpret some of the data with an eye toward the future of exits in Iceland. Speaking with some of the private equity and venture capital firms that have been investing in Iceland the longest can help give some more context to the current and future exit market. Here is a selection of some of their comments we received from them that we thought were the most relevant:
• Hekla Arnardottir, Founding Partner, Crowberry Capital: “The VC market has been very active since 2015 when we got a lot of VC funding into our ecosystem, followed by Crowberry being launched in 2017. The companies those funds have been investing in are now approaching the exit era, so the coming years may be contributing more to VC backed exits.”
• Sæmundur K. Finnbogason, Fund Manager at Kría (Icelandic government fund of funds): “The pipeline of future exits from Iceland is poised to reflect a vibrant and evolving market landscape, including a robust VC & PE fund scene. With a strong emphasis on innovation, particularly in sectors such as renewable energy, blue economy, biotechnology, and digital solutions, Icelandic companies are increasingly attracting attention from international investors. … As these companies mature and scale, we can anticipate a notable increase in both the volume and value of exits.”
• Helga Valfells, Founding Partner, Crowberry Capital: "As local VC investors who have been active over the last fifteen years, we know that the exits that we have seen over the last four years are the result of the transformation that Iceland has gone through since the financial crisis in 2008. After the financial crisis the public and private sectors came together to focus on building a knowledge economy. The Icelandic pension funds increased their investment in VC and private equity and some great GPs were born…The substantial exits we have seen over the last four years are a product of this period - capital efficient founders managed to navigate an ever-changing environment to build some great businesses out of Iceland…The successful exits that we have seen over the last four years have served to make local entrepreneurs increasingly professional and ambitious. Iceland now has some repeat entrepreneurs as well as a whole new generation of founders that were employees for the exited companies and are now ready to venture out on their own. We have also been seeing a growth in direct investments into Icelandic start-ups from leading international VC funds such as Andreesen Horowitz. Companies founded from 2016 onwards are exceptionally promising and are due to be excited over the next 2 to 5 years. I am sure that we will see some more exits, for when strong founders work with well-connected local and international investors something great will happen."
• Ellert Hlöðverssen, CFO at Íslandsbanki: “Historically, Iceland has proven itself as a breeding ground for various industries where startups have been formed, developed and grown based on well-educated workforce, ingenuity and favorable overall demographics. In the last 15 years we have seen steadily increasing interest from international investors for both direct investment into Icelandic companies as well as through the exit market…It is my belief that the focus on technological solutions and intellectual property development will become increasingly more important, and in many cases Icelandic companies are offering interesting solutions which have potential on a global scale. Due to this, I strongly believe that the exit market will continue to thrive in the coming years.”
• Gunnar Pall Tryggvason, Managing Director of Alfa Framtak: “Iceland, its businesses and businesspeople have much to offer to the world. Our fundamentals are strong, but access to the international markets for goods and capital is vital for our ongoing development. It is nice to see how Iceland is being recognized ever more and this research demonstrates.”
Conclusion
When we started the research, I expected that the exits in Iceland would be comparable to the rest of the world, but I did not expect them to be twice as good as the US. Surprisingly, trophy fishing in Iceland for companies has been happening for years and the fishing has been good.
Blessed with an educated population, abundant renewable power, a strategic geographic location and a strong economy, Iceland’s private companies have capitalized on these gifts in the form of company exits. Based on the pipeline of current deals and communication with people in the industry, it looks like the future prospects remain strong for additional exits.
We at New Iceland believe the best way to access the future exits of Iceland is through investing in the private equity and venture capital funds of Iceland which have recently been opening to foreign investors.
I invite you to drop a line in the waters of Iceland and score your own trophy fish.