Klarna, once Europe’s most valuable private technology company, was slashed from $46 billion to $6.7 billion in a struggling fundraising that underscored the collapse in many tech valuations.
Michael Moritz, chairman of Klarna and a partner at investor Sequoia, blamed “investors suddenly voting in the opposite way to the way they’ve been voting for the last few years.” He predicted that “once investors come out of their bunkers, shares of Klarna and other premium companies will get the attention they deserve.”
The $800 million fundraising round announced on Monday included new investors including Mubadala, the United Arab Emirates sovereign wealth fund and Canada Pension Plan Investments in addition to existing investors such as Sequoia and the Commonwealth Bank of Australia.
Just over a year ago, Klarna was valued at $46 billion after a $639 million funding round led by Japan’s SoftBank, the investment group behind the disastrous bet on office-sharing group WeWork. The new “pre-money” estimate, excluding new cash, is just $5.9 billion.
Founded in 2005, the Swedish company pioneered buy-now, pay-later, which allows customers to delay payments or split them into installments. The popular form of credit was boosted by the e-commerce boom during the pandemic.
But with inflationary pressures mounting, investors were soured by growth-chasing fintech companies, which suffered an even steeper decline than any other technology sector.
Sebastian Semyatkowski, Klarna’s chief executive, said the latest fundraising was “proof of the strength of Klarna’s business” in the face of sharp declines in global stock markets.
Buy-now-pay-later providers have been particularly hard hit as discretionary spending falls, defaults are expected to rise and higher interest rates further weigh on margins.
They also face increasing competition from major lenders and big tech players such as Apple, which is launching its own Apple Pay Later product in the US.
There is also increasing regulatory scrutiny of the sector. In June, the UK government outlined plans to tighten rules, including requiring lenders to carry out affordability checks and allowing consumers to lodge complaints with the Financial Ombudsman Service.
Klarna’s new valuation is the lowest since August 2019, when it was valued at $5.5 billion, and follows a series of fundraising efforts this year, according to people briefed on the matter.
Efforts to attract investors for $25 billion in new money in May failed to gain significant traction, according to these people. In the same month, Klarna cut 10% of its more than 7,000 employees, with CEO Sebastian Semyatkowski describing 2022 as a “tumultuous year”.
In June, some investors were approached with an opportunity to invest at a valuation below $20 billion, according to the same people.
Klarna’s woes are reflected in the performance of its peers. Shares in US-listed buy-now-pay-later supplier Affirm, which partners with major retailers such as Amazon and Walmart, are down nearly 90% from their peak in November.
CPP’s decision to invest marks the latest step into the sector by a Canadian pension fund. In March, the Ontario Teachers’ Pension Plan led a £210 million funding round in Lendable, a consumer finance group based in London.
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