The valuation of Swedish buys now pay later startup Klarna fell from $46 billion to $6.7 billion in the latest round of difficult financing. Klarna, once Europe's most valuable private tech company, has been hit hard by the recent broad-based drop in tech industry valuations.
Michael Moritz, chairman of Klarna and a partner at Sequoia Capital, said the reason for the slump in valuations was “as investors suddenly voted in the opposite way compared to the past few years.” But he believes that "Klarna and other best-in-class companies will get the attention they deserve as investors come out of the bunker."
In addition to existing investors such as Sequoia Capital and Commonwealth Bank of Australia, Klarna's $800 million financings announced on Monday was joined by a number of new investors, including UAE sovereign wealth fund Mubadala Investments and Canadian Pensions. Gold Plan Investment Committee.
More than a year ago, Klarna's valuation rose to $46 billion in a $639 million funding round led by SoftBank. However, in its latest funding round, Klarna was valued "before cash" at just $5.9 billion.
Founded in 2005, Klarna pioneered the "buy now, pay later" payment model , allowing consumers to pay later or pay in installments. The rapid development of the e-commerce industry during the epidemic has also promoted the full rise of the buy-now-pay-later model.
However, as inflationary pressures mount, investors have turned against growth-chasing fintech companies, whose valuations have fallen more than the rest of the tech sector.
Klarna Chief Executive Sebastian Siemiatkowski said the latest funding round "proves the strength of Klarna's business" amid a slump in global stock markets.
Buy now, pay later will be hit harder, however, as consumers' disposable income falls, defaults rise and rising interest rates further weigh on margins.
They also face increasing competition from mainstream credit institutions and tech giants such as Apple. Apple will also launch Apple Pay Later, a buy now, pay later service in the US.
The industry is also facing increasingly stringent regulations. In June, the UK government laid out plans to strengthen regulatory rules, including requiring lenders to assess customers' ability to repay and allowing users to lodge complaints with the Financial Ombudsman Service.
The latest valuation is Klarna’s lowest since August 2019, when the company was valued at $5.5 billion, people familiar with the matter said. This follows a series of efforts by Klarna to raise capital this year.
In May, Klarna tried to raise money at a $25 billion valuation but failed to attract investor interest, according to people familiar with the matter. That same month, Klarna announced it would cut 10% of its workforce of more than 7,000 people. Simyatkowski said 2022 will be a "turbulent year" for the company. In addition, in June this year, Klarna also discussed with some investors the possibility of financing at a valuation of less than $20 billion.
Klarna's peers have faced a similar dilemma. Shares of Affirm, a buy now, pay later service that is already listed in the U.S., have fallen nearly 90 percent from their November highs after partnering with big retailers such as Amazon and Walmart.