Klarna CEO Sebastian Siemiatkowski and another top executive dialed into a company-wide video call this week to reassure employees following cuts that have affected around 10% of the Swedish fintech’s 7,000 employees – but employees say Siemiatkowski has the Employees angered by attacking and defending their unions 48-hour delay to let some employees know if their jobs are safe.
On the Wednesday call The billionaire Klarna co-founder expressed disappointment at the “unfair and uneducated” criticism of the downsizing, which sidesteps Sweden’s tough labor laws and unions with bids for the startup’s employees. Some employees outside of Sweden were immediately dismissed and there were also takeover bids. “Considering the complexity … it’s disappointing and I have to say I would have expected a better climate where 48 hours is an acceptable deadline to have this conversation internally,” says Siemiatkowski, who owns a 3.2 billion US dollars to 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 just months apart in early 2021, valuing the startup at $46 billion. Klarna pioneered a digital rebrand of layaway plans that allow shoppers to spread the cost of purchases over months or even years because buy now, pay later.
Investors SoftBank, Sequoia and Permira had funded a breakneck expansion of Klarna through the pandemic’s e-commerce boom, employing 3,500 people in 2020 and 5,000 in 2021. Klarna’s promise to stagger payments on purchases had charmed cash-strapped consumers and merchants with promises of additional sales, but the Stockholm-based startup had doubled losses to $487 million in 2021.
At the end of April, Klarna had imposed a hiring freeze in some departments, which the employees said they interpreted as a sign of a slowdown. The company had also pushed last year to pay raises in stock options instead of cash. Also Siemiatkowski allegedly attempted to raise a new $1 billion round at an initially flat valuation, but was pushed back by investors amid sharp falls in the market value of public technology companies.
The move by Klarna, led by Sequoia Capital’s Sir Michael Moritz, to cut spending came as the Silicon Valley venture capital firm issued a somber memo about the global economy to its portfolio companies. The notewhich was first reported by The informationurged founders to conserve capital to avoid a “death spiral” in a potentially prolonged downturn.
Headwinds for the 17-year-old startup began before the war in Ukraine shook public markets. Rising inflation should make the company’s deferred payment business more attractive to buyers, but it also increases the risk of default. Klarna funds its lending primarily with deposits from its German and Swedish banking operations, but says it has seen its borrowing costs surge over the past year Bloomberg. Regulators around the world have begun to question whether Klarna and its competitors have been pushing consumers to adopt it unaffordable debt.
Klarna also faces competition from a new breed of buy-now pay-later operators in Europe and publicly traded rivals Affirm, PayPal and Block Inc in the US. Competitors described Klarna’s pricing for deals with some major retailers Ensuring exclusivity is “irrational,” while some current and former employees have expressed concern about the deals.
Affirm’s stock price has plummeted 70% since the start of the year, while shares in PayPal and Block, which resulted from Square’s acquisition of Afterpay, have lost half their value over the same period. “I don’t think anyone could expect that the private markets would not be affected by the major correction in the public markets,” says Konstantin Sidorov, founder and CEO of the London Technology Club and a Klarna investor.
Klarna had shifted its focus in the United States to focus on Nike, Best Buy and other retail companies after closing a sales team in early 2020 that was focused on signing smaller retailers after people became more familiar with Klarna instead having bad experiences with smaller companies at first,” says a former Klarna employee.
Employees in the United States have been particularly hard hit, as around a third of the company’s 650 employees in New York and Columbus, Ohio, were laid off earlier this week. The company’s attempt to become a standalone shopping portal and generate revenue from advertising in its own app also faced challenges. Still, Siemiatkowski said Klarna would “double down” in the US, with a focus on getting better margins from existing borrowers rather than attracting new buyers.
The restructuring pain could also weigh on future growth. forbes understands that a major international e-commerce company was told earlier this week that a deal with Klarna would be suspended for at least six months due to internal changes.
Klarna also faced challenges internally. forbes spoke to over 10 current and former Klarna employees who spoke of a company structure focused on creating “internal startups” with around 10 employees who, along with frequent reshuffles, management changes and hundreds of new hires joining each month, led to confusion.
This confusion was evident in how the company handled its layoffs. Late Monday, a mandatory company-wide meeting popped up on company-wide calendars. In a recorded video, Siemiatkowski spoke about the war in Ukraine and an economic downturn before sharing the news of the mass layoffs. At the end of the message, the shocked employees had to wait for emails, which would arrive over the next few days, telling them if they still had a job. “After that it got pretty chaotic. If they cut the 10% and told everyone else they were staying, they would have felt safe,” said a Klarna employee who was offered a buyout.
The cuts went through the company. New hires, some of whom had only been with the company for a few days, as well as company veterans were affected. Managers were unaware of who would be cut on their team. Candidates who had signed contracts and were planning to move to Stockholm turned to expat Facebook groups and Telegram chats for answers. “My boss realized that I was being fired, which was totally bizarre,” says another former US employee.
The move has rocked surviving employees, who have questioned the reasons for the cuts. Sweden SVT reported that among those affected were five of the nine employees who ran an unrecognized union executive within the company. “People are sitting here now and thinking, what does this company do? People who had worked for ten years were thrown out the same way as people who had worked here for two weeks,” says a current Klarna employee.
A prolonged battle with Swedish unions over layoffs could add to the pain for Klarna. “They take advantage of the fact that most people don’t understand Swedish labor law and most international employees think they will be made redundant and even claim the severance pay they don’t have to,” says another Klarna employee.
The upheaval at Sweden’s star startup, which recently outperformed local rival Spotify, and the public markets are likely to put an end to rumors of Klarna’s plans for an IPO. “We will probably remain private for a little longer. It’s always a question: the more great long-term investors we can attract, the bigger our appetite to stay private longer,” Siemiatkowski says in conversation with the financial times.