CBA’s Klarna bet slumps 67pc in 12 months

That’s nothing to sneeze at, of course, but it’s not the $US2.3 billion it was worth 12 months ago.

Still, Klarna would be doing well if it can raise money at a valuation 67 per cent below last year. Shares in US BNPL group Affirm are down 73 per cent in the last year, while ASX-listed group Zip is down 93 per cent.

Klarna’s tumble is yet more evidence of the reckoning hitting the global venture capital sector as interest rates rise and investors run away from risk.

Stories of job cuts abound – tech publication Crunchbase has a running tally that sits around 21,000 and Klarna itself has cut 10 per cent of its staff – but new investors are also demanding harsh conditions of tech companies.

Reports suggest investors are demanding what are called enhanced liquidation preferences, whereby they are guaranteed to get a profit before old investors (or employees holding stock options) get paid.

These liquidity preferences aren’t new, but apparently some investors are demanding deals where they get three times their outlay back before anyone else.

Apparently all this frugality isn’t going down so well with tech workers in Silicon Valley, with venture capitalist Bill Gurley last week noting the end of “Disney-esque set of experiences/expectations in high-tech companies… For employees that have only known this world, the idea of ​​layoffs or cost reduction (or being asked to come into the office) is straight up heresy… Unfortunately, you can’t’ ‘wish away’ the fact that if your company isn’t cash flow positive and capital is now expensive, you are living on borrowed time. ‘Culture’ won’t matter if your company isn’t around”.

Klarna is arguably better positioned to survive this period than some of its rivals; it has a 17-year history and its deposit-taking operations in Northern Europe should give it greater resilience.

It’s also worth noting that in addition to a stake in the main business, CBA’s Klarna deal also makes it a joint venture partner in the Swedish group’s Australian operations.

CBA chief Matt Comyn was clear at The Australian Financial Review Banking Summit last month that he still believes in Klarna, arguing that while BNPL has been commoditised, Klarna’s ability to deliver leads to merchants remained a key differentiator.

Given how keen CBA is to find ways for its consumer and business customers to benefit from each other, that alone could ultimately make the experiment worthwhile.

Comyn will also be watching the slide in the bitcoin price with interest; it plunged below $US20,000 on the weekend and is now down 60 per cent since the start of the year.

CBA is quietly pushing ahead with its plan to restart the small cryptocurrency trading pilot it launched last year; Comyn said last month the air has clearly come out of the sector, but interest from customers – mainly younger male ones – remained strong and the opportunity is still there to provide them with a safe place to trade.

The temptation here is to accuse CBA of getting carried away with fads – BNPL and crypto – that have turned out to be built on cheap money and hot air.

But the alternate view is that the bank made modest investments in areas that have allowed it to better understand changing customer preferences.

A willingness to experiment inside cautious guard rails is not something to discourage in large companies where change often comes too slowly. Experiments always bring lessons, sometimes bring failures and occasionally bring profits.

That’s still the case with Klarna – at least for now.

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