Happy Monday. It’s Independence Day here in the United States, which means that much of TechCrunch is on holiday. But as last week came to a close, several important pieces of data dropped that are worth our consideration. Let’s not let that opportunity pass, day off or not. (Also, this is the last day of our Fourth of July sale, so, you know, feel free to contribute to, ahem, TechCrunch’s financial independence as well!)
The bits of data that came out on Friday included Klarna’s potentially final new valuation, which is settling even lower than we anticipated, and the conclusion of the FTX-BlockFi drama, which we need to unpack because the numbers are a little harder to parse than the headline figures you might have seen over the weekend.
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Let’s compare the figures with 2021 prices, discuss the discrepancies thereof, and then chat through which other companies might be in trouble based on the somewhat shocking math we have ahead of us. Just how far from the mark did some startup pricing get last year? This far:
Klarna and BlockFi as warning shots
As always when discussing negative news items, we’re not here to crow. Instead, we want to parse new data so that we can better understand the state of the market. Covering layoffs, down rounds and the like is not nearly as much fun as covering IPOs. So, here’s to getting back to that when possible.
Regardless, the bad news summarizes as follows:
- Klarna’s new funding round may come in worth $650 million, valuing the European BNPL giant at around $6.5 billion.
- BlockFi may sell to FTX for up to $240 million (not counting a $400 million credit facility, which does not count toward an equity valuation).
Both figures are far cries from their heights set during the 2021 venture capital boom. Klarna’s valuation slash from around $45 billion to a single-digit-billion figure may be among the most shocking reductions that we can recall, but because the company’s last price was set by SoftBank, we are willing to avoid superlatives in its case and simply note the differential.
The BlockFi news is direr; thanks to U.S. BNPL provider Affirm’s falling share price, the market knew that Klarna was set to get its market price cut dramatically. BlockFi’s implosion was more rapid and perhaps more impactful on other startups.
On the rapid front, BlockFi was valued at $4.75 billion last August, per PitchBook data. Today, it is worth around 5% of that figure, meaning that it lost around $14.3 million worth of value per day since its last private funding round that included a rising price for the company’s shares.
This is worrisome given that the crypto funding cycle that included the BlockFi round did not come to as rapid a halt as the rest of the world of upstart technology companies. By that we mean that crypto-focused startups kept raising at comparatively expensive prices to other startups into 2022, implying that the rapid deflation of BlockFi could be a harbinger for more companies than we might otherwise expect.
That potential impact is ameliorated to a degree by the fact that BlockFi is likely in more financial distress than your average crypto startup. But, its newly shorn valuation could chill the market for other crypto-focused upstarts, exacerbating the pressure that those companies might have already been under thanks to the more general crypto down cycle that we find ourselves in.
In both cases, however, we are seeing the exuberant hopes of 2021 crash into the realities of 2022. Klarna’s valuation grew thanks to its incumbent status in the BNPL market, hot demand for fintech shares and what we consider to be a desire by investors to pile capital into an early winner to help it become something closer to the winner.
Fintech startups broadly and crypto fintech projects narrowly appear to be among the groupings of startups most likely to receive shin kicks from the public and private markets this year. Software more generally is suffering, yes, but its percentage downdraft may wind up being a bit more modest. (We’ll check back in on that data point in a few months.)
It is never completely safe to pick a few examples from a broader trend and say here, these show just how far things went, but look at these two examples! They show just far things went last year in terms of valuation appreciation for businesses that were either more commoditized than perhaps expected (Klarna) or far more fragile than anticipated (BlockFi).
Should investors have known better? You can argue that, but in a period of collective ebullience, it’s hard to point a finger in any single direction. The blame, if you can call it that, should land on more shoulders than any single collection of market participants can offer up in sacrifice.