Hike funding

Klarna’s valuation reduced to $6.7 billion in new funding round

Swedish buy now, pay later (BNPL) giant Klarna has seen its valuation reduced to $6.7 billion, in a sharp turn of fate for what was once Europe’s most valuable fintech.

Klarna’s new valuation is just a fraction of the $46 billion enterprise value it achieved this time last year, when it raised a $639 million seed round led by SoftBank, making it Europe’s most valuable startup.

The valuation drop comes with a new round of $800m funding that includes existing investors including Sequoia, Bestseller and Silver Lake, as well as new investors including UAE sovereign wealth fund Mubadala and the Office of Canada pension plan investment.

“It is a testament to the strength of Klarna’s business that, during the steepest decline in global equity markets in more than fifty years, investors recognized our strong position and continued progress in revolutionizing the healthcare industry. retail banking,” CEO Sebastian Siemiatkowski said in a statement Monday..

“Now more than ever, companies need a strong consumer base, a superior product and a sustainable business model.”

Somewhere else, Siemiatkowski took to Twitter to explain what “the media might omit in their reporting on this.” So, as FYI:

Problem at Klarna

In May, Siemiatkowski announced that the company was laying off 10% of its global workforce, citing market constraints.

As many as 700 people have been affected by the layoffs, indicating that even the continent’s best capitalized fintech is not immune to an economic downturn.

Despite all its funding, the company experienced an increasing burn rate for some time. In May, the company discreetly announced that pre-tax losses tripled to $250 million in the first three months of the year from $80 million in the same period last year.

In a statement announcing the new funding, Klarna justified its revised valuation by comparing itself to its peers.

“Klarna has not been immune to significant declines in fintech stocks on public markets,” the statement said.

“The company’s peers are down 80-90% from peak valuations and as a result Klarna’s valuation adjustment is on par with its public peers from its $45.6 billion valuation. dollars in June 2021.”

Meanwhile, Sequoia, which has backed Klarna since 2010, attributed the revised valuation to fluctuating investor sentiment.

“The change in Klarna’s valuation is entirely due to investors suddenly voting the opposite way to how they’ve voted for the past few years,” said Michael Moritz, partner at Sequoia.

“The irony is that Klarna’s business, its position in various markets, and its popularity with consumers and merchants are all stronger than at any time since Sequoia first invested in 2010. Eventually, after investors come out of their bunkers, Klarna shares and other first-rates firms will get the attention they deserve”.

BNPL startups like Klarna thrive in a low interest rate environment where it is cheap to offer consumer credit at no or very little interest.

For the past two years, this has meant that merchant fees and late payment fees have generated enough revenue – but their margins are starting to shrink when central banks raise rates.

Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter You can register here.