Buy-now pay-later giant Klarna announced its valuation had plunged to $6.7bn after its latest funding round today, down from $45.6bn last year, as it becomes the latest firm to be rocked by a global tech downturn.
Klarna, which provides both a consumer credit product and retail banking services in some jurisdictions, said today it had raised $800m in an equity round from first-time investors including Mubadala Investment Company, the $284bn sovereign fund of the UAE, and Canada Pension Plan Investment Board which manages over C$539bn.
Existing investors including Sequoia, the founders, Bestseller, Silver Lake, and Commonwealth Bank of Australia, also backed the round, with bosses at Klarna indicating today the funds will primarily be used to expand its position in the United States.
The sharp drop in valuation comes after boss Sebastian Siemiatkowski said last month that the firm would be tapering back its expansive growth plans to focus on a path to profitability, as it faces a global economic downturn and drop in consumer spending. Klarna was also forced to slash ten per cent of its workforce last month to brace for a slowdown.
In a statement today, Siemiatkowski said: “It’s a testament to the strength of Klarna’s business that, during the steepest drop in global stock markets in over fifty years, investors recognized our strong position and continued progress in revolutionizing the retail banking industry.
“Now more than ever businesses need a strong consumer base, a superior product, and a sustainable business model.”
The Swedish headquartered firm enjoyed huge growth in the past two years as often younger shoppers flocked to online platforms and used its flexible payment tool, earning the title of Europe’s most valuable startup last year when it was valued at $45.6bn. But falling consumer spending and increased regulatory scrutiny have sparked some investor jitters and ramped up pressure on the firm to spell out a fast route to profitability.
Increased regulatory scrutiny of Klarna’s buy-now pay-later product in some jurisdictions has also increased investors’ wariness of the long-term viability of product. In the UK, the Treasury recently published plans to regulate the sector next year with measures including bringing firms within the remit of the Financial Ombudsman Service and requiring companies to carry out affordability checks.
Michael Moritz, a partner at venture capital giant Sequoia – which has held a stake in Klarna for over a decade – said the fall in valuation was due to investors “suddenly voting in the opposite manner to the way they voted for the past few years.”
“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,” he said.
Klarna’s valuation drop comes amid a wider reckoning for fintech and high-growth tech firms globally. The cheap money that has fuelled a funding frenzy in the past decade has dried up amid rising interest rates and a looming recession, with investors now questioning the high-growth strategies of some major fintech giants.
Sequoia wrote to founders in its portfolio earlier this year that the era of growth-at-all-costs was coming to a close.
“Capital is becoming more expensive while the macro is becoming less certain, leading to investors de-prioritizing and paying up less for growth,” the firm said in a presentation to its founders.