Michael Moritz, president of Klarna and a partner at investment firm Sequoia, blamed “investors suddenly voting the opposite way to the way they’ve voted in recent years.” He predicted that “after investors come out of their shelters, shares of Klarna and other top-tier companies will get the attention they deserve.” The $800 million fundraising round, announced on Monday, included new investors including Mubadala, the sovereign wealth fund of the United Arab Emirates, and the Canada Pension Plan Investment Board, in addition to existing investors such as Sequoia and the Commonwealth Bank of Australia. Just a year ago, Klarna was valued at $46 billion after a $639 million funding round led by Japan’s SoftBank, the investment group behind a disastrous bet on office-sharing group WeWork. The new “pre-money” valuation, excluding the new cash, is only $5.9 billion. Founded in 2005, the Swedish company pioneered the now-pay-later market, which allows customers to delay payments or split them into instalments. The popular form of credit was boosted by the boom in e-commerce during the pandemic. But with inflationary pressures mounting, investors have squeezed growth-chasing fintechs, which have suffered even steeper declines than any other tech sector. Sebastian Siemiatkowski, Klarna’s chief executive, said the latest fundraising was “a testament to the strength of Klarna’s business” in the face of sharp falls in global stock markets. Buy-now-pay-later providers have been hit particularly hard as discretionary spending declines, bankruptcies are expected to increase and higher interest rates further weigh on margins. They also face increasing competition from major lenders and big tech players such as Apple, which is launching its own Apple Pay Later product in the US. There is also increasing regulatory scrutiny of the sector. In June, the UK government outlined its plans to strengthen rules, including requiring lenders to carry out affordability checks and allowing consumers to lodge complaints with the Financial Ombudsman Service. The new valuation is the lowest for Klarna since August 2019, when it was valued at $5.5 billion, and follows a series of attempts to raise cash this year, according to people briefed on the matter. Efforts to tap investors for $25 billion in fresh cash in May failed to gain significant traction, according to these people. In the same month, Klarna cut 10 percent of its workforce of more than 7,000, with chief executive Sebastian Siemiatkowski describing 2022 as a “tumultuous year”. In June, some investors were approached with the opportunity to invest at a valuation below $20 billion, according to the same people. CPP’s decision to invest marks the latest move into the sector by a Canadian pension fund. In March, the Ontario Teachers’ Pension Plan led a £210 million funding round in Lendable, a London-based consumer finance group.
