Payments fintech company Klarna is poised to raise fresh capital at a valuation of about $6.5 billion, a fraction of the $46 billion it was valued at just a year ago, three people with direct knowledge of the matter said.
The $600 million deal, which is being finalized, will involve investors including Sequoia Capital and Abu Dhabi’s Mubadala putting money into the Swedish company, two of the people added.
The dramatic drop in the value of what was one of Europe’s most valuable private companies underscores the extraordinary turnaround in sentiment toward cash-sucking, growth-chasing start-ups.
It also shows how investors have been put off by buy-now-pay-later companies like Klarna, which provide a form of short-term credit.
Just a year ago, Klarna managed to double its valuation to $46 billion after a $639 million funding round amid the e-commerce boom during the coronavirus pandemic. That funding round was led by Japan’s SoftBank, the investment group behind the disastrous bet on office-sharing group WeWork.
Klarna; his advisor Goldman Sachs; and Sequoia, whose partner Michael Moritz is also chairman of Klarna, declined to comment. Mubadala did not immediately respond to a request for comment. The Wall Street Journal first reported the new financing terms.
The company was founded in 2005 and pioneered the “buy now, pay later” business, which allows customers to delay payments or split them into installments. However, 40 percent of its transactions are now paid in full through the Pay Now option.
The new valuation would be Klarna’s lowest since August 2019, when it was valued at $5.5 billion, and follows a series of fundraising efforts this year, according to people familiar with the matter.
In May, the company was courting investors, including institutional investment firms and family offices, for $25 billion in new money. According to these people, however, it failed to gain any significant power.
Klarna also cut 10% of its more than 7,000 staff, with CEO Sebastian Semyatkowski describing 2022 as a “tumultuous year”.
A month later, some investors were approached with the possibility of investing at a valuation below $20 billion, according to the same people.
The downgrade reflects a broader spread of the fintech market. Rising inflation has prompted investors to take a more cautious approach, stemming the flow of easy money that has helped propel the sector to staggering heights.
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Buy now, pay later Suppliers have been particularly hard hit as falling discretionary spending, the risk of rising defaults and higher interest rates erode already thin margins.
In its first-quarter results, Klarna reported a net loss of SEK 2.5 billion ($254 million), quadrupling the amount in the same period a year earlier, while cash flow fell from a positive SEK 7.6 billion to a negative SEK 7.3 billion Swedish kroner for one year.
Shares in US-listed buy-now-pay-later supplier Affirm, which partners with major retailers such as Amazon and Walmart, have fallen nearly 90% from their peak in November. The Australian Zip has fallen more than 95 percent from its February 2021 peak.
They also face pressure from rivals such as Apple, which is launching its own Apple Pay Later product in the US, and growing regulatory scrutiny over whether there are adequate checks to ensure customers can afford the loans.
In June, the UK government outlined plans to strengthen rules in the sector, including requiring lenders to carry out affordability checks and allowing consumers to lodge complaints with the Financial Ombudsman Service.
Buy now, pay later Suppliers have already taken some steps to allay regulatory concerns. Since June, Klarna has started reporting information to credit agencies, allowing other lenders to see customer payment data.
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