My family and I first came to Iceland in 2010 for entirely personal reasons. As the years passed, the visits became more frequent, and we found ourselves increasingly drawn to the world’s greenest[1] and safest[2] country. My admiration for Iceland only grew as I stumbled upon one of its best kept secrets: the yet undiscovered potential of the Icelandic private equity and venture capital funds.

On the Edge of Something New

Iceland is worth admiring for more than just its safety, stability, and breathtaking natural beauty, but not many know it yet. Because of my professional background of 25+ years is in private equity, I soon took an interest in Iceland's private equity and venture capital funds. As I spent more time with these funds, I began to more fully recognize their potential within the context of two very important features unique to Iceland:

1. Iceland is a world leader in sustainability, and that commitment permeates the business and governmental culture.
2. The private equity and venture capital funds of Iceland are very active in sustainable investing but have not yet been discovered by foreign limited partners.

I believe it is only a matter of time before Icelandic private equity and venture capital funds become the attractive option for foreign investors, spurred on by the growing demand for sustainable investments.

Iceland, Sustainability, and Venture Capital

Iceland is an advanced western society, located ideally between two of the world's strongest markets: Europe and North America. It enjoys the four freedoms of the European Single Market and meanwhile harbors a unique cultural commitment to sustainability that inspires a strikingly united effort across all levels of society. Because of this, the relatively small country's impact on global sustainable investing has been significant.

Leading the Way Toward a Green Economy

Iceland has its reasons for maintaining such a strong focus on sustainability. Because it's situated near the Arctic Circle, Iceland witnesses the effect of climate change in very tangible ways; for instance, in just the past few years, the Okjökull glacier was lost to rising temperatures[7]. Its inhabitants recognize and take ownership of the need for sustainable efforts in all areas of society, and partnerships have formed between government and business around the intentional preservation of Iceland's delicate ecosystems for generations to come.

It should come as no surprise, then, that Iceland is a world leader in renewable energy and carbon neutrality. Consider the following:

Iceland currently produces 99.98% of its electricity using renewable energy[8]

90% of central heating in Iceland is currently produced by geothermal energy[9]

The Government of Iceland has voluntarily adopted the EU Taxonomy requirements

The Government of Iceland has committed to being carbon neutral by 2040, 10 years ahead of the commitments of the Paris Agreement[10]

Encouragingly, many companies all throughout Iceland are also working toward these goals. Some of these innovative organizations are Carbfix, which binds CO2 emissions directly into stone to store underground, and Kerecis, who uses fish skin for wound care and just became Iceland’s first unicorn exit[11].

Venture Capital in Iceland: Advancing the Green Frontier

In addition to—and perhaps because of—Iceland's strong efforts towards sustainability, the country has garnered financial backing both from within and without. In 2022, there was $380 million USD invested in Iceland through 36 venture capital deals[16]. Most of this capital came from outside of Iceland, providing further validation for the global strength of the start ups in Iceland[16].

Within Iceland, funding for new and existing sustainable companies has been available from a variety of domestic sources, and this has greatly helped to grow the economy. Icelandic venture funds raised over $308 million USD in their most recent fundraising round[13]. This represents one of the highest amounts of venture capital funding per capita in Europe, which has helped to fuel the start up ecosystem.

With such strong contributions to the global sustainability efforts and an impressive array of private equity and venture capital funds, Iceland is uniquely positioned to meet the need that has presented itself in today's institutional investing.

Looking Ahead

It is clear that there is a rising global demand for sustainable investments, and as soon as foreign investors start to see what I've seen, there's going to be a growing demand for Icelandic private equity and venture capital funds. Right now, there are already 19 private equity and venture capital firms,* and half of them have or are working on new EU Taxonomy Article 8 or 9 green finance investment funds [15]. Though these Icelandic funds are typically smaller than other European private funds, they offer both attractive returns and larger co-investment opportunities than many of their peers.

For me, the evidence is compelling. When it comes to sustainable investments that can have a global impact, Iceland's private funds are an ideal choice for the responsible institutional investor. If you would like to learn more about these funds, please reach out to any of them directly or to New Iceland Advisors. 

*Some of the current private equity and venture capital firms in Iceland that are part of this growing ecosystem include Alfa Framtak, Brunnur Ventures, Crowberry Capital, Eyrir Invest, Frumtak Ventures, Glymur, Íslandsbanki, Kvika Asset Management, Landsbankinn, MGMT Capital, Stefnir hf. | Stefnir Asset Management Company, Transition, VEX ehf. and others.

All comments above are the opinion of Heath Cardie and are not intended to be investment advice. Securities are offered through Finalis - Finalis Securities LLC Member FINRA / SIPC. New Iceland Advisors is not a registered broker-dealer, and Finalis Securities LLC and New Iceland Advisors are separate, unaffiliated entities.

References
[1] https://www.technologyreview.com/2023/04/05/1070581/the-green-future-index-2023/
[2] https://worldpopulationreview.com/country-rankings/safest-countries-in-the-world#Iceland
[3] Hand, D., Sunderji, S., Pardo, N. (2023) 2023 GIINsight: Impact Investing Allocations, Activity & Performance. The Global Impact Investing Network (GIIN). New York.
[4] PitchBook 2023 Sustainable Investment Survey of Institutional Investors
[5] Hand, D., Sunderji, S., Pardo, N. (2023) 2023 GIINsight: Impact Investing Allocations, Activity & Performance. The Global Impact Investing Network (GIIN). New York.
[6] Hand, D., Sunderji, S., Pardo, N. (2023) 2023 GIINsight: Impact Investing Allocations, Activity & Performance. The Global Impact Investing Network (GIIN). New York.
[7] https://earthobservatory.nasa.gov/images/145439/okjokull-remembered
[8] Government of Iceland’s Sustainable Investing Financing Framework Plan https://www.government.is/library/Files/2023-04-28%20Icelands%20Sovereign%20Sustainable%20Financing%20Frameworkvefurpdf.pdf
[9] https://www.greenbyiceland.com/renewable-energy/
[10] https://www.greenbyiceland.com/carbon-neutrality/
[11] https://northstack.is/2023/07/07/kerecis-becomes-icelands-first-unicorn-after-being-acquired-by-coloplast-for-up-to-1-3-billion/
[12] https://www.invest.is/why-iceland
[13] https://www.framvis.is/?lang=en
[14] https://erikdestefanis.substack.com/p/iceland-the-emerging-tech-ecosystem
[15] https://newicelandadvisors.com/investment-firms with Article 8 & 9 fund names provided by Gunnar Sveinn Magnússon
[16] https://northstack.is/2023/02/02/the-bestest-year-yet-over-380-million-into-icelandic-startups/