Skúli Fógeti and the First Icelandic Startup

It’s January.

I imagine Skúli Magnúson sitting idly on a bench in a lavishly decorated waiting room. Out of the windows he would have seen the Copenhagen skyline with her snowy rooftops. The business plan lies next to him on the bench, along with a collection of product samples.

The business plan has been adjusted and prepared for this audience and he has all the numbers already ingrained in his head. His pitch has been meticulously prepared and he’s had plenty of time to practice during his trip from Iceland. Not that he isn’t used to performing before a crowd or to manoeuvre himself in tricky negotiations. Only, today the stakes are particularly high. As he is summoned to the main hall, he draws one deep breath before he rises up and strolls leisurely towards his audience.

The year is 1752 and Skúli Magnússon is pitching the first Icelandic company to the King of Denmark. The company ended up being called Innréttingarnar and it was Iceland’s first corporation (hlutafélag)

The Business Plan

Roughly a year earlier, Skúli had presented a business plan at the annual Althingi parliament at Þingvellir. The plan included a cost estimate for the construction and operation of a wool-weaving factory and a fishery. 

The initial investment for the wool-weaving factory

  • A factory building constructed out of turf and stones
  • A felting mill constructed out of turf and stones
  • Colouring materials
  • 5 looms
  • 20 spinning wheels and clasps
  • Other equipment

The initial investment for the Fishery

Startup Cost and sales forecast

Skúli’s estimate was that the total cost of the startup would be 3,800 Danish rigsdaler (rd.). His first-year revenue estimate was 3346 rd. and the estimated costs were 2300 rd. Net profits would, therefore, be 1046 rd., corresponding to a hefty profit margin of 27%.

The plan also included the proposed Articles of Associations, a document that has been preserved until today. In the plan, he mentions 20 individuals as potential investors and the number of shares he proposes to each one.

The Terms Sheet and Seed Stage

After presenting the plan on Althingi, 16 individuals subscribed to the share offering, including Skúli himself. The list of shareholders was as follows:

  • Bjarni Halldórsson, county treasurer (2 shares)
  • Björn Markússon, deputy lawyer (1 share)
  • Brynjólfur Sigurðsson, county treasurer (3 shares)
  • Erlendur Ólafsson, county treasurer (1 share)
  • Guðmundur Sigurðsson, county treasurer, (4 shares)
  • Magnús Gíslason, lawyer (4 shares)
  • Ólafur Árnason, county treasurer (2 shares)
  • Ólafur Gíslason, bishop of Skálholt (4 shares)
  • Sigurður Sigurðsson, the parliamentary secretary, (1 share)
  • Skúli Magnússon, landfoged, (4 shares)
  • Sveinn Sölvason, lawyer (2 shares)
  • Þorstainn Magnússon, county treasurer (2 shares)
  • Þórarinn Jónsson, county treasurer (1 share)

In total there were 31 shares subscribed to, each with a par value of 50 rd., bringing the total value of equity raised to 1550 rd. At the time a dairy cow was worth 4.5 rd., so the value of the initial offering equalled the value of 340-350 dairy cows.

Skúli, the Merchant Banker

The Board of Directors of the newly founded company assigned Skúli with the task of going to Denmark and raise more funds in the form of grants and subsidies, anywhere he could find them. If Skúli would be successful in obtaining a grant from the Crown, he would receive a commission of 5%.

In preparation for the roadshow, Skúli concocts a report on the state of Icelandic industry and it’s reformation. He intends to present it to the Crown. Although perhaps not as suitable for modern day PowerPoint style of presenting, Skúli did have a touch for the sensational. The title? The very subsistent nature of Iceland’s current state and how this project can lead it to salvation and from total ruin, as it is now more and more threatened to receive if the island’s tide is not turned.

In the report Skúli makes the following reformation recommendations:

  • 15 farming families from Jutland and Norway should be migrated to Iceland. They should educate the nation in the agriculture of wheat and offer training in the utilization of agricultural equipment.
  • New factories should be built around the country to harvest local raw materials.
  • Tree seeds and seedlings should be secured and sourced to the Icelanders from Denmark and Norway.
  • The fishing vessel fleet should be increased dramatically with bigger vessels.
  • The nation should be provided with proper education and training in the salting of fish and meat.

In addition to this, Skúli also informs the Crown of the founding of Inrettingarnar and of their goal of obtaining a grant of 6.000 rd. and for the company to be given plots by the Crown in Reykjavík, Hvaleyri and Örfiisey to establish it’s operations.

Skúli requests that the company be exempt from being the subject of distraint, irrespective of the nature of any potential the illegal activity causing it to be the subject of distraint. He also requests that the produce of the company be exempt from the official Price List of Goods of Trading Company. The Trading Company was a League of Merchants that held a trade licence from the Crown, which gave them a monopoly on trade to and from Iceland. The Trading Company would get pre-empitve rights to the purchase of all produce that would come from the Company.

Setting Up Shop

On the 4th of January, 1752, the Crown publishes its verdict. All demands put forth by the Company are accepted on behalf of the Crown and instead of the 6000 rd. grant requested by the company, the King ups the stake to 10.000 rd. The Company is also granted a license to transport it’s goods internationally, thus overriding the monopoly given to the Trading Company. The King also acknowledges the Articles of Association put forth by the Company.

Thus came into existence, the first Joint-Stock Company in Iceland.