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December 9, 2011 8:26 pm
Klarna, a Swedish online payments service, is the latest European technology company to achieve a valuation approaching a billion dollars, thanks to a new venture fundraising from investors DST Global and General Atlantic.
Stockholm-based Klarna, which doubled its revenues to $120m in 2011 and has been profitable for several years, has raised $155m to accelerate its growth. According to stock market filings by Øresund, an existing Swedish investor, the fundraising values Klarna at around $800m.
Klarna’s service is used by 14,000 merchants and 6m shoppers in northern Europe to process $2.5bn-worth of transactions, annualised at the current run rate. The new funds will enable it to launch in new countries, after arriving in Germany earlier this year, and improve its technology in areas such as fraud prevention and mobile payments.
Customers buying from online retailers using Klarna’s platform do not have pay upfront for their goods, entering just a few items of basic personal information. They are invoiced when they receive their goods, usually settling by bank transfer.
“The company is really about two things: safety and simplicity. We have separated buying from paying,” said Sebastian Siemiatkowski, the 30-year-old co-founder and chief executive of Klarna. “We have proven the business model works and we have seen high growth in existing markets but we think there is a huge potential globally for these kinds of services.”
He says Klarna’s process simplifies online transactions and makes purchasing less risky for consumers. It is particularly valuable for retailers in markets where credit card usage is less widespread than in the US and UK, and can boost merchants’ sales by 15 per cent.
Klarna is able to achieve this because it crunches data from hundreds of variables – from credit-rating companies to the goods purchased or even time of day – in less than a second before authorising or declining a transaction. The technology uses “machine learning” to continuously improve its risk-weighting algorithms, keeping fraud rates lower than for credit cards.
“There are very few private companies anywhere in the world that offer the opportunity of being great standalone enduring public companies and those really are the ones of greatest interest to us,” Michael Moritz, partner at venture capital group Sequoia and a Klarna board member, told the FT.
Some of the funds raised will allow existing investors, such as Øresund, to sell down part of their stakes. Sequoia is not selling any shares.
Klarna faces competition from much larger online payment companies such as PayPal, which bought a similar service called BillMeLater in 2008. But if it maintains its current momentum, Klarna looks set to join a small group of European technology companies – including communications service Skype and online retailer Vente-Privée – to achieve the kind of heady billion-dollar valuations that are still most common in Silicon Valley.
Spotify, another Swedish start-up, was valued at $1bn with a fundraising earlier this year, with DST – the Russian backer of Facebook, Twitter and Groupon – also among the digital music service’s investors.
“I remember when we started the company seven years ago, entrepreneur was a bad word,” said Mr Siemiatkowski. “Over time that has changed and now there is a different mindset. Europe in general I feel is a really exciting scene.”
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