CASCADE

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

Friday, May 20, 2022 by 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)

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.
THE TAKEAWAY

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.

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