Klarna is close to raising new funding at a valuation of about $6.5 billion, which would be far below its last round raised last year, according to the Wall Street Journal. The move is the latest sign of the effects of inflation and the economic downturn on the fintech sector and "buy now, pay later" in particular.
Last June, during a frenzy of interest in "buy now, pay later" providers, Klarna raised $639 million in funding led by SoftBank at a $45.6 billion valuation, which was a big jump from its 2019 funding at a $5.5 billion valuation. Klarna, originally from Sweden, has become known as one of the largest "buy now, pay later" providers globally.
But the economic downturn has hit pay-later providers, along with the rest of the fintech industry. While these companies have said that they are less affected by the downturn than other consumer credit companies, the prospect of a recession could hurt the consumer spending that pay-later companies finance.
The new Klarna funding round, to be led by current investor Sequoia Capital, per the Journal, would be a down round, particularly affecting investors who put money into the company at the $46.5 billion valuation last year.
When companies raise funding in a down round, existing shareholders — including founders, employees and prior investors — can see the value of their equity reduced as the new investment dilutes their holdings and resets the price of shares. Sequoia Capital, which is reportedly leading this new round, is already an investor in Klarna, so participating in the new round could help preserve its overall stake. Venture capitalists also can arrange for protections against down rounds when they invest, which can involve granting additional shares or repricing earlier rounds.