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Klarna faces valuation cut amid tough environment for late-stage startups


Europe’s most valuable VC-backed company could reportedly see its valuation fall, as market turmoil for tech companies trickles down into late-stage. 

Klarna, which offers buy now, pay later services, is looking to raise $1 billion in fresh funding at a valuation potentially in the low $30 billion range, according to The Wall Street Journal. That would represent a drop of roughly 30% from the $45.6 billion valuation the Swedish fintech company reached last June with its Series H. 

Klarna declined to comment for this article, describing The Wall Street Journal report as “pure speculation.”

Klarna has seen its worth skyrocket over the past few years, amid a surge in Europe’s VC ecosystem and the fast growth of the fintech sector. It became Europe’s most valuable VC-backed company in March 2021, but if a new round were raised at a valuation below $40 billion, Klarna would fall behind fellow fintech company Checkout.com

 

Rising interest rates and inflation have weakened investor appetite for public tech companies. While the impact of the widespread sell-off in the public markets hasn’t yet been broadly felt across the venture market, European late-stage valuations have dipped, as the shift in public market attitudes hits the most valuable late-stage startups first. 

From Q4 2021 to the first quarter of 2022, the median pre-money valuation for late-stage European companies decreased by 6.3% to $19.4 million, according to PitchBook data, while valuations rose at all other stages for that same time period. New listings have fallen significantly due to current market conditions, with just 16 European VC-backed companies going public last quarter.

Investors are also growing wary of funding expensive late-stage startups that are yet to be profitable, given the increased risk of an economic downturn. In its 2021 results, Klarna’s losses grew to 7.1 billion Swedish kronor (around $710 million) from less than 1.4 billion kronor the year before. 

Moreover, a significant drop in Klarna’s valuation would be another knock to its Series H lead investor SoftBank. Last week, the Japanese conglomerate’s Vision Funds posted a record loss of 3.5 trillion yen (about $27 billion) for the latest fiscal year. Among its portfolio companies, several have begun layoffs, including photo- and video-editing tools provider Picsart and celebrity shout-out app Cameo

Through Q1, European down rounds remained few, with only 14.9% of all VC deals including a cut in valuation—the lowest proportion of the past decade, according to a PitchBook report. But as lofty private market valuations are more intensely scrutinized and growth is harder to come by, more startups could face cuts. 

Featured image courtesy of Klarna



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