One small step for Klarna. One giant leap for fintechs considering financing beyond equity investment.
The Swedish payments innovator is raising $32.2 million (300 million crowns) via a subordinated-note sale to “a limited number of large Nordic investors.” The 10-year, floating-rate notes come with an initial 4% coupon, which is based on the 3-month STIBOR plus 4.5%.
Speaking about the financing, Klarna’s Erik Engellau-Nilsson said that the funding was the company’s “first small step to a wider presence in debt capital markets.” The goal of the financing was first to fund Klarna’s accelerated growth, which Engellau-Nilsson credited to expansion into U.S. and U.K. markets. He said the second goal was to “test the debt capital markets, and see what the appetite was like.”
Jakob Söderbaum, SVP sales, demonstrated Klarna at FinovateSpring 2012 in San Francisco.
Testing the debt capital market will help Klarna diversify its funding sources. The company has raised more than $285 million in equity including £90 million in private equity to finance the acquisition of Sofort in 2014.
While much of the growing use of debt financing in fintech can be attributed to the rise of alternative lenders who may be institutionally more comfortable with debt, Klarna’s latest financing is a reminder that the debt capital markets are an option for a wide variety of fintechs. Consider the $60 million debt financing deal for Finovate alum Yapstone (payments); the $2.5 million debt financing for Socure; and $3 million in venture debt for ID.me (authentication); and the $1 million in debt financing for DeviceFidelity (hardware). Ahead of this latest financing, Klarna was believed to have a valuation of more than $2 billion.
Available at 65,000 online stores and with 45 million consumers using the technology, Klarna enables more efficient e-commerce by allowing shoppers to receive goods first and then pay for them within 14 days of delivery. Klarna assumes all credit and fraud risk, making the process safer for online merchants, and requires only minimal, top-of-mind information from consumers (i.e., name and address). The company says its revenues grew by 27% year-over-year (2.2 billion crowns in 2014 versus 2.8 billion crowns in 2015) and expects revenue gains of 40% in 2016 due in large part to Klarna’s U.S. expansion last fall.
Founded in 2005 and headquartered in Stockholm, Sweden, Klarna demonstrated its payment technology at FinovateSpring 2012. In June, the company was named to the CNBC Disruptor 50 list for a second year in a row and in May, Klarna announced that its payment-processing technology would be made available to brick-and-mortar merchants. The company announced a partnership with UK e-commerce host, EKM in April, the same month Klarna earned a spot on FinTechCity’s inaugural FinTech50 Hall of Fame.