Klarna valuation tanks as gloss goes off BNPL market

I don’t want to be the guy who says “I told you so”, but…For those of you who have been regular readers you will note that for many months now James Wood, Editorial ninja and I, have been saying that the BNPL market is too hot and not just that, we think that Klarna is the next WeWork – incidentally WeWork’s implosion point was at a valuation of $47 Billion.

Klarna valuation tanks as gloss goes off BNPL market

Klarna has now announced that it needs to raise fresh capital but at a valuation of about $6.5 billion, a fraction of the $46 billion it was valued at just one year ago.

The $600 million deal, which is being finalised, will involve investors including Sequoia Capital and Abu Dhabi’s Mubadala putting money into the Swedish company.

The dramatic decline in the worth of what was one of Europe’s most valuable private companies highlights the extreme reversal in sentiment for cash-guzzling, growth-chasing start-ups.

It also shows how investors have soured on “buy now, pay later” companies such as Klarna. Only a year ago, it was able to double its valuation to $46 billion after a $639 million funding round amid a boom in e-commerce during the coronavirus pandemic.

That funding round was led by Japan’s SoftBank, the investment group behind a disastrous bet in WeWork – surely you say, they can see the similarities! Apparently not.

Klarna; its adviser Goldman Sachs; and Sequoia, whose partner Michael Moritz is also the chair of Klarna, each declined to comment.

The Wall Street Journal first reported the new funding terms. The company was founded in 2005 and is a pioneer of the buy now, pay later business, which allows customers to delay payments or divide them into instalments. However, 40% of its transactions are now paid in full through its “Pay Now” option.

The new valuation would be Klarna’s lowest since August 2019, when it was worth $5.5 billion, and follows a series of efforts to raise cash this year, according to people briefed about the matter.

In May the company was tapping investors, including institutional investment firms and family offices, for new cash at a $25 billion valuation. However, it failed to get any significant traction.

Klarna also cut 10% of its more than 7,000-strong workforce, with chief executive Sebastian Siemiatkowski describing 2022 as a “tumultuous year”.

A month later, some investors were approached with the opportunity to invest at a valuation below $20 billion.

The reduced valuation reflects a wider rout in the FinTech market. Surging inflation has lead investors to take a more cautious approach, stemming the flow of easy money which helped boost the sector to staggering heights.

In its Q1 2022 results, Klarna reported net losses of SKr2.5 billion ($254 million), quadruple the amount in the same period a year earlier, while cash flow dropped from positive SKr7.6 billion to negative SKr7.3 billion in a year.

OUCH.

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