Late stage venture capital deals and funding have been growing rapidly over the last three years. The most recent European Fintech to hit the headlines with yet another multi-Billion dollar valuation is Klarna. The “Buy now Pay later” payments company raised $460 Million at a massive $5.5 Billion valuation.
My immediate reaction to the numbers were, “This bubble needs to pop”. However, that is not the point of this post.
This funding round makes Klarna the largest Private Fintech firm in Europe. In total they have raised about $1.2 Billion so far. The Scandinavian firm raised $100 Million earlier this year. However this round comes with serious international investors and growth plans.
The most recent round (of $460 Million) was led by Dragoneer Investment group and was joined by big names like Blackrock. The Commonwealth Bank of Australia came in with a $100 Million cheque to support expansion plans into Australia. However, the focus is clearly expanding into the US.
So what have they achieved so far to justify so much capital at this mammoth valuation? And why the US? Let’s first look at some Klarna Statistics from their annual report 2018.
- 130,000 merchants across verticals,
- Over 25,000 added in 2018
- Average daily transactions – 1 million
- ~26 million new consumers last year,
- 70% of consumers make repeat transactions.
- 47% growth YoY in the DACH region
- Revenues over $600 Million last year, and expected to be ~$1 Billion in 2019
The numbers should show that they don’t have any major inroads in China or India. Therefore, they are going for the next best thing – the US. They are no strangers to the US market with over 3000 merchants in the US signed up. US is also their largest consumer base with 3.4 Million coming onboard last year.
This comparison is from an analysis on Alibaba’s potential multiple of revenues at the time of its IPO. With 279 million active consumers, 8.5 million merchants onboard and 43% operating profits, they were expected to receive a valuation of 18X revenue multiple. They managed $68 Billion (~8X) valuation and raised $22 Billion through their IPO.
How is this relevant for Klarna? with a $1 Billion revenue, the US market yet to be tapped, 70% returning customers, Klarna’s valuation at $5.5 Billion sounds reasonable. This is by no means the result of an investment analysis of a zillion spreadsheets – just a back of the envelope calculation.
Most firms that have made decent inroads in the US market often command better valuation at the time of an IPO. I wouldn’t be surprised if we started hearing about Klarna’s IPO in 12 months or so.
However, if they had IPO ambitions, Klarna would need to accelerate their merchant and customer acquisition from where they are today. With half a Billion in the bank, that is exactly what they should be working on.
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).