Fashion magnate takes $225M+ stake in Swedish payment unicorn Klarna

Payments startup Klarna is ramping up its valuation again as it picks up a new, strategic investor. Last valued at $2.25 billion in 2015, the company today announced that Brightfolk, controlled by fashion tycoon Anders Holch Povlsen, is becoming a “qualified owner” of Klarna — that is, buying up at least 10 percent of the company.

This is a secondary deal: Specifically, Povlsen is buying shares from existing investors General Atlantic, DST Global and co-founder Niklas Adalberth, all of whom still retain stakes as Klarna shareholders after the transaction.

At Klarna’s $2.25 billion valuation, Brightfolk’s 10 percent+ stake is valued at $225 million or more. But while the company is not commenting on any of the financial terms of today’s deal, TechCrunch understands that this is an “up” round, with the valuation now higher than $2.25 billion.

Klarna enables payments on third-party websites and apps, with flexible purchasing options such as paying upon delivery or over time (it also handles the finance, and says it is the largest company of its kind doing that), and, perhaps uniquely among finance startups, it is already profitable.

That is not surprising. According to an investor deck from 2016 that TechCrunch was passed by a source last month — which, incidentally confirms the $2.25 billion valuation and $80 million fundraise, which had only been reported up to now — Klarna had processed transactions from 45 million users from 65,000 merchants in 18 countries, equivalent to 400,000 transactions per day.

That worked out to 2,776 million Swedish kronor in revenues ($318 million) in 2015 and SEK170 million ($19 million) in EBT margin (6.1 percent).

And as of today, those numbers have grown. The company says it has to date processed transactions from 60 million users in Europe and North America across 70,000 merchants. It also has taken on more assets to expand its footprint: specifically in February it acquired from Wonga a PayPal competitor in Germany called BillPay for $75 million.

Klarna said it also has seen transactions grow 50 percent year-on-year in 2016, with 37 percent growth in Q1 of 2017. Volume growth was up 44 percent in 2016, with 39 percent growth in Q1 of 2017. In the last quarter it also added 17,000 new merchants. Klarna, a spokesperson tells me, has “consistently solid profitability, which has always be case with Klarna from beginning.”

While we have been told there are no large new equity rounds in Klarna’s immediate future, the company has been focused on a stream of extra financing at smaller sums and secondary investments.

In March, Klarna took a $5.2 million investment from Creandum at its previous valuation; and it’s been reported that the company also is looking to raise an additional $57 million, partly to finance the BillPay acquisition.

This latest transaction, we understand, is separate to that and brings a new strategic player into the mix. Povlsen owns fashion conglomerate Bestseller, which in turn owns a number of brands, including Jack & Jones, Vero Moda, Only and Selected.

These sell in brick-and-mortar stores and online. He also has holdings in online fashion portals ASOS and Zalando. Klarna already works with these companies in some markets and is likely to be looking at ways of expanding that.

“As Klarna continues its path towards a smoother shopping experience, few people could be a better fit than Anders Holch Povlsen. Klarna has successfully been partnering with BESTSELLER for a number of years. This has given him a firsthand insight into the strengths of our offerings and therefore a unique ability to strategically support the future development of the company. I am delighted to welcome such a strong partner into Klarna,” Sebastian Siemiatkowski, co-founder and CEO of Klarna, said in a statement.

More generally, Klarna’s rising valuation comes at a key time in the world of online commerce and payments. While companies like PayPal (traded publicly and currently with a market cap of nearly $64 billion) and Stripe (last valued around $9 billion) continue to be used widely for basic payments, there are others like Klarna that are not only providing the payment basics but are bringing in alternative financing to build out processing volume and margins.

Other startups in the same area include Kreditech, which recently received a large tranche of financing from Naspers’ PayU, another PayPal competitor, to work together on building payment and financing products for online merchants. Its focus is on developing markets, whereas Klarna for now counts Europe and the U.S. as its main markets.

The company has applied to rebrand itself as Klarna Bank, presumably as a precursor to a new and expanded range of services.

The company applied for a banking license in 2015, and is reportedly looking at a shift into being more an all-in-one digital wallet rather than only used for the singular service of one-off payments and financing connected to specific purchases.

According to Crunchbase, Klarna has raised just under $300 million in equity investment. Other backers include Atomico, Fabrice Grinda and FJ Labs, GP Bullhound, IVP, QED and Sequoia.