Iceland is dodging the VC doldrums as Frumtak Ventures lands $87M for its fourth fund

Iceland’s startup scene is punching above its weight. That’s perhaps in part because it kept the 2021 hype in check, but mostly because its tech ecosystem is coming of age. Iceland attracted the most venture capital per capita of all Nordic countries in 2023, but that stat is somewhat skewed by its relatively small population of fewer than 400,000 inhabitants. More tellingly, foreign co-investments in Icelandic startups reached a record in 2023. In this context, it makes sense to see VC firms raise more funding.

Frumtak Ventures is a perfect example. The firm just closed an $87 million fourth fund that was oversubscribed — and significantly larger than its third $57 million fund.

It helps that Frumtak has a solid track record. The firm isn’t disclosing returns, and its third fund is too recent for that, but general partner Andri Heiðar Kristinsson told TechCrunch that “the second fund performed really, really well.” Since there are only a handful of VC firms in Iceland, they often co-invest, but Frumtak is more focused on working with global firms investing at the Series A, B or C stage. However, it also gets deal flow from local acceleration programs such as the ones led by KLAK, which Kristinsson co-founded.

Most of Frumtak’s limited partners are Icelandic pension funds. “We were in a very good position that all our existing LPs were happy to back us again,” Kristinsson said. As for geographic scope, he added, Frumtak will back Icelandic founders but “focus on local innovation with global potential.”

Because of the country’s small population and cultural factors, Icelandic startups tend to look abroad early on. For instance, Frumtak portfolio company Sidekick Health went global with its gamified digital care platform, with partners such as U.S.-based Anthem.

Frumtak is also willing to invest in companies based abroad but run by Icelandic entrepreneurs, such as U.S.-based Activity Stream, a data platform for the live entertainment industry. “If any of [Frumtak’s] portfolio companies is going to be successful, they’re gonna have to be thinking outside of Iceland,” the company’s CEO Einar Saevarsson told TechCrunch.

As for sectors, Frumtak says it will invest “at the intersection of software, AI, and deep tech in industries playing on Iceland’s historical strengths in areas such as ocean tech and logistics, healthcare, travel, energy, climate, and gender equality.”

While sector-agnostic, Frumtak placed most of its bets over the last 15 years into B2B SaaS startups at the seed or Series A stage. Now its focus will be more diverse.

One thing that won’t change: Frumtak will remain “super hands-on,” Kristinsson said. “We always take a board seat, we work relentlessly with our companies, we always say that we want to be the first call for founders, both in good times and in bad times.”

In a country where venture capital itself is relatively new, Frumtak’s positioning is to be run “by entrepreneurs, for entrepreneurs,” in the words of its managing partner Svana Gunnarsdóttir, a former founder herself, like Kristinsson. Their third partner, Ásthildur Otharsdóttir, adds a corporate operator background.

Iceland’s tech scene skews toward early-stage startups, as does Frumtak, whose name roughly translates to “early catch.” But Kristinsson is confident that as the scene matures, more exits will follow. “Looking 10 or 20 years forward, my vision is that we will have fueled some of the biggest listed companies in Iceland in the next decades,” he said.

“It may sound like a cliché, but we’re an isolated island that had to go through really tough challenges, some harsh conditions through the centuries. And we honestly believe that there’s some sort of entrepreneurial spark. … Even if obviously, we’re very small, but there’s something in the DNA that’s perseverance, dedication, and we’ve seen that play out pretty well,” Kristinsson said.