↘️ The “down round” returns

Friday, May 20, 2022 by Robinhood Snacks |
The lights are looking a little dimmer lately (Georg Wendt/Picture Alliance via Getty Images)

The lights are looking a little dimmer lately (Georg Wendt/Picture Alliance via Getty Images)

The lights are looking a little dimmer lately (Georg Wendt/Picture Alliance via Getty Images)

The lights are looking a little dimmer lately (Georg Wendt/Picture Alliance via Getty Images)

Yesterday’s Market Moves
Dow Jones
31,253 (-0.75%)
S&P 500
3,901 (-0.58%)
11,389 (-0.26%)
$30,151 (+5.08%)

Hey Snackers,

Don’t bad-mouth your cat Kiwi in front of your other cat Lunchbox if you don’t want her to hear about it: a new study found that cats recognize the names of the other felines they live with. (Side note: who’s commissioning these studies?)

Stocks fell again yesterday, sliding even closer toward bear-market territory. The S&P is now 19% below its January peak (bear market = 20% decline).


1. Klarna’s valuation could fall by a third as the downturn catches up to private markets

Down and to the right… Booming buy now, pay later (BNPL) startup Klarna reportedly wants to raise money at a valuation a full third lower than its last raise. Klarna became Europe’s most valuable fintech startup in June after it raised a chunk of change from SoftBank at a $46B valuation. But since then markets have plunged, forcing cash-strapped Klarna to fundraise at a reduced valuation — aka a “down round.”

  • Quick rise, quick fall: Klarna’s valuation ballooned 13X between 2019 and last year as BNPL took off. But its losses also grew as it burned through venture-capital cash to expand.
  • Bad news for backers: Earlier this month, SoftBank posted its worst-ever annual loss of $13B+ as the value of its tech investments tanked.

What goes up… sometimes comes down. It wasn’t just Klarna: startups raised a record $600B from VCs last year, twice as much as the year before. But as tech stocks have fallen to Earth, so has investor confidence: startups raised 26% less $$ last quarter than at the same time last year.

  • That’s where down rounds come in: startups that’ve burned through their cash have little choice but to raise more, even if it’s at a reduced valuation.

Corrections aren’t choosy… They devalue public and private companies alike. Experts say private startups usually lag behind public companies in seeing the effects of market slumps. Shares of Affirm, a publicly listed Klarna rival, are down a staggering 75% this year— and now Klarna’s hurting too. It could spell trouble for private tech companies as public tech giants lost $1.3T in the early months of this year.


Bipartisanship lives… Democrats and Republicans agree on something: a bipartisan group of senators have introduced a bill that would force Google to break up its hugely lucrative ad biz. It’s one of the toothier antitrust bills winding its way through Congress.

  • The issue: Google (in)famously has a stake in all aspects of the online ad marketplace: it owns the tools that companies use to buy and sell ads, plus the biggest exchange where the buying and selling happens.
  • The criticism: Critics say the dominant position makes Google a monopoly, allowing it to set the terms of the market as buyer, seller, and broker.
  • The bill: The Competition and Transparency in Digital Advertising Act (mouthful) would bar public companies that have $20B in annual ad sales from operating on more than one side of the ad ecosystem.

Antitrust cheat sheet… The bill is aimed directly at Google, which brought in a whopping $55B from ads last quarter alone. But it’s not the only regulation targeting Big Tech’s market power that has found bipartisan momentum in DC. Also in play:

  • Cracking open the app stores: One piece of legislation would force Apple and Google to open their app stores to third-party competitors.
  • No more playing favorites: A similar bill would prevent platforms like Amazon from favoring their own products and services over others.

The window for lawmakers to make these laws is closing… Congress goes on recess in August, and then it’s election season (read: nothing gets done). In the likely event that Republicans win control of either the House or the Senate in November, antitrust legislation is unlikely to be a priority — especially now that polls show a shrinking number of Americans see it as one. That leaves the next two months as potentially do or die for any of these bills.

What else we’re Snackin’

  • Help: The Senate greenlighted $40B for Ukraine, which is running out of cash, and President Biden’s expected to sign it into law ASAP. In the past two months, the US has spent $54B on Ukraine aid.
  • Bargain: Call it a clearance sale: Kohl’s said yesterday that it expected several buyout bids in the coming weeks. The retailer also reported unexpectedly low sales last quarter and cut its annual profit forecast.
  • Stop: A hedge goes over the edge: Melvin Capital, a blue-chip hedge fund that lost billions during the GameStop surge last year, has decided to shut down and return all its clients’ cash.
  • Hog: Harley-Davidson shares skidded 9% yesterday after the moto-maker halted shipments on most of its bikes because of supplier problems. Harley’s profits boomed last year as demand rose, but now it’s struggling to meet demand.
  • AR: It’s not augmented reality… it’s Apple reality. The Fruit reportedly showed off a new mixed-reality headset to its board of directors last week, a sign the device is getting closer to showtime for consumers.

Snack Fact of the Day

The average building wastes 30% of the energy it consumes


  • Earnings expected from Deere & Co., Foot Locker, and Booz Allen Hamilton

Authors of this Snacks own: shares of Apple, Amazon, and Google

ID: 2211560