Klarna to Raise Fresh Cash at Slashed $6.5 Billion Valuation
The deal would be a huge comedown for the company, which investors valued at $45.6 billion in 2021
By Corrie Driebusch, Ben Dummett\ and Julie Steinberg
Wall Street Journal
Updated July 1, 2022 12:59 pm ET
Klarna Bank AB is nearing a deal to raise new money at a valuation of around $6.5 billion, according to people familiar with the matter, a humbling comedown and a testament to the punishing environment facing startup companies.
The Sweden-based specialty lending and online payments provider is negotiating to raise about $650 million mostly from existing investors led by Sequoia Capital, the people said. Michael Moritz, who is the chairman of the well-known venture-capital firm, serves in the same role at Klarna.
The deal has yet to be completed and could still hit last minute snags, the people said. But if completed, it would represent a huge discount on the company’s valuation when investors led by an arm of SoftBank Group Corp. 9984 -1.99%? valued Klarna at $45.6 billion in June 2021.
Klarna’s core offering, known as buy-now-pay-later, is embedded in online checkout pages for popular retailers such as Macy’s and Bed Bath & Beyond. Consumers use Klarna to break up payments over time for things they order online.
Klarna competes directly with credit card companies, and some investors viewed the company as possibly the next PayPal Holdings Inc. or Block Inc., companies that have grown by stealing business traditionally dominated by banks.
Buy-now-pay-later is a new spin on an old idea: installment plans. But instead of just being used for big-ticket items such as sofas and televisions, buy-now-pay-later can be used for just about anything. Instead of charging consumers interest, Klarna takes a fee from the retailers.
The company’s services boomed during the pandemic as consumers flocked to online shopping. So did its valuation, which soared through several funding rounds from $5.5 billion to $31 billion and eventually $45.6 billion.
The valuation surge made Klarna one of the world’s most valuable fintech companies and turned its CEO and co-founder, Sebastian Siemiatkowski, into a paper billionaire.
But in recent months investor appetite for loss-making companies has dried up. Klarna expanded rapidly in the U.S. and has burned through money it previously raised.
Klarna is licensed as a bank in Sweden, and the fundraising was also necessary to keep up with more stringent Swedish bank capital requirements, The Wall Street Journal reported last month, citing people familiar with the company.
Klarna’s fundraising is being closely watched in the Silicon Valley as a signal of the amount of pain investors will have to take in the broader tech swoon. Venture-capital firms often base the value of their investments on a company’s most recent funding round.
Klarna’s success brought in competition. Traditional credit card lenders such as Barclays PLC have jumped into the buy-now-pay-later space. Last month, Apple Inc. said it would add a buy-now-pay-later feature to Apple Pay. Klarna and its competitors also face increased scrutiny from regulators about buy-now-pay-later products in the U.S. and the U.K.
Justifying Klarna’s previous valuation was especially difficult given the steep drop in tech stocks in recent months. Shares in two of Klarna’s competitors, Affirm Holdings Inc. and Zip Co., are down more than 80% this year.
In talks with investors, Klarna initially tried to negotiate a $50 billion valuation. That was whittled down to around $30 billion, and then to $15 billion, before investors and the company opted for the even lower valuation.
In the talks, the company didn’t give in to investor demand to issue preferred securities instead of common equity, the people familiar with the matter said. Preferred securities offer holders preferential treatment over other shareholders to guard against potential future dilution or losses.
Write to Corrie Driebusch at corrie.driebusch@wsj.com, Ben Dummett at ben.dummett@wsj.com and Julie Steinberg at julie.steinberg@wsj.com
Klarna to Raise Fresh Cash at Slashed $6.5 Billion Valuation - WSJ |
