Klarna CEO Sebastian Siemiatkowski and another senior executive took part in a company-wide video call this week to reassure staff after cuts that affected around 10% of the Swedish fintech’s 7,000 employees , but staffers say Siemiatkowski angered employees by attacking their unions and defending a 48-hour deadline to tell some staff if their jobs were secure.
On Wednesday’s roll call The billionaire co-founder of Klarna has expressed disappointment at “unfair and uneducated” criticism of the staff cuts, which circumvent Sweden’s strict labor laws and unions with buyout offers for the startup’s staff. Some staff outside Sweden were fired on the spot, and offers also received buyout offers. “Given the complexity…it’s disappointing and I have to say I expected a better climate where 48 hours is an acceptable time frame to have this conversation internally,” says Siemiatkowski, who owns a 3 stake. .2 billion in Klarna.
The cuts mark a pause in the explosive growth of Europe’s most valuable startup. Klarna had raised $1.6 billion in two rounds within months of each other in early 2021, which valued the startup at $46 billion. Klarna has launched a new digital image of layaway plans, which allow shoppers to spread the cost of purchases over months or even years, like buy now, pay later.
Investors SoftBank, Sequoia and Permira had financed a meteoric expansion of Klarna which had 3,500 employees in 2020 and 5,000 in 2021 thanks to the e-commerce boom of the pandemic. Klarna’s promise to spread payments on purchases had charmed cash-strapped consumers and merchants with the promise of additional sales, but the Stockholm-based startup had seen its losses double to $487 million in 2021 .
Klarna had imposed a hiring freeze on some departments in late April, which staff members say they interpreted as signs of a slowdown. The company had also pushed for wage increases to be paid in stock options rather than cash over the past year. Siemiatkowski also reportedly sought to raise a new round of $1 billion at an initially stable valuation, but was pushed back by investors amid the sharp drop in the stock market value of public tech companies.
Klarna’s decision, chaired by Sequoia Capital’s Sir Michael Moritz, to cut spending came as the Silicon Valley venture capital firm issued a grim note on the global economy to its companies in wallet. The memo, which was first reported by informationcalled on founders to hold on to capital to avoid a “death spiral” in what could be a prolonged downturn.
Headwinds for the 17-year-old startup began before the war in Ukraine and chilled public markets. While soaring inflation should make the company’s deferred payment business more attractive to buyers, it also increases the risk of default. Klarna primarily funds its loans with deposits from its German and Swedish banking operations, but has seen its borrowing costs rise sharply over the past year, according to Bloomberg. Regulators around the world have begun to question whether Klarna and its rivals are pushing consumers into unaffordable levels of debt.
Klarna has also faced competition from a new breed of buy now, pay later operators in Europe and listed rivals Affirm, PayPal and Block Inc in the US. Competitors have described the prices of Klarna’s agreements with certain large retailers as guaranteeing exclusivity as “irrational”, while some current and former staff members have expressed concern over the agreements.
Affirm’s share price has plunged 70% since the start of the year, while PayPal and Block, which emerged from Square’s takeover of Afterpay, shares have lost half their value on the same period. “I don’t think anyone can expect private markets to be unaffected by the sharp correction in public markets,” says Konstantin Sidorov, founder and CEO of the London Technology Club and Klarna investor.
Klarna had shifted its focus in the US to focus on Nike, Best Buy and other retail powerhouses after closing a sales team focused on signing smaller merchants in early 2020. “We decided to only sue the big merchants and maybe rebuild that. after people get familiar with Klarna rather than having a bad experience initially with small businesses,” said a former Klarna staff member.
Staff in the United States have been particularly hard hit with around a third of the company’s 650 employees in New York, and Columbus, Ohio, let go earlier this week. The company’s attempt to become a full-fledged shopping portal and earn revenue from advertising in its own app also ran into difficulties. Even so, Siemiatkowski said Klarna would “double down” on the US with a focus on earning better margins on existing borrowers than winning over new buyers.
The pain of restructuring could also weigh on future growth. Forbes understands that a major international e-commerce company was informed earlier this week that any agreement with Klarna would be suspended for at least six months due to its internal changes.
Klarna also faced challenges internally. Forbes spoke to more than ten current and former Klarna employees who spoke of a corporate structure focused on creating “in-house startups” of ten employees who, with frequent reshuffles, changes in management and hundreds of new hires each month, have caused confusion.
This confusion was seen in the way the company handled its layoffs. A mandatory company-wide meeting appeared on company-wide calendars on Monday night. In a pre-recorded video, Siemiatkowski spoke about the war in Ukraine and an economic downturn before sharing news of the mass layoffs. At the end of the message, the shocked staff expected emails to arrive over the next few days informing them if they still had a job. “After that, it got quite chaotic. If they had reduced the 10% and told everyone else they were staying, they would have felt safe,” says a Klarna staff member who was offered a buyout.
The cuts have swept the entire company. New hires, some only with the company for a few days, as well as veterans of the company, have been affected. The managers didn’t know who in their team would be cut. Applicants who had signed contracts and planned to move to Stockholm turned to expat Facebook groups and Telegram chats for answers. “My boss found out that I had been fired by me, which was totally weird,” says another former US-based staff member.
The move rocked surviving employees who questioned the rationale for the cuts. The Swedish SVT said those affected included five of the nine employees who headed an unrecognized trade union council at the company. “People are now sitting around wondering what is this company doing? People who had worked for ten years were fired in the same way as those who had worked here for two weeks,” says a current Klarna employee.
A protracted battle with Swedish unions over layoffs could also add to Klarna’s pain. “They take advantage of the fact that most people don’t understand Swedish labor law and most international employees think they are being fired and will even accept severance pay. they don’t have to” , says another Klarna staff member.
The upheaval of the Swedish flagship startup, which only recently overtook local rival Spotify in valuation terms, and in the public markets is likely to stall intermittent rumors about Klarna’s plans for a public listing. “We will probably continue to be private for a little longer. It’s always a question of: the more excellent long-term investors we can attract, the greater our desire to stay private longer,” says Siemiatkowski. in an interview with the FinancialTimes.