In the past few years, arguably no fintech model experienced the type of growth that “buy now, pay later” platforms achieved.
As a result, companies like Klarna, Affirm, and Uplift have all seen their valuations balloon well north of $1 billion.
However, while all of these companies’ market caps are comfortably in unicorn territory, there has been some turbulence in the sector on account of the current economic climate.
Back in June 2021, Klarna reached a valuation of $45.7 billion. That was just three months after it closed a round of funding at a $31 billion valuation.
Last week, Klarna confirmed that it had just closed another round of funding, this time raising a total of $800 million.
The problem is, the company raised that money at a $6.7 billion valuation.
That’s an 85% valuation drop off in a year.
A fall from grace of this magnitude is normally reserved for startups tumbling toward bankruptcy, but the reality is a little different for Klarna.
That’s because, despite this drop in valuation, consumer sentiment around the buy-now-pay-later platform is arguably higher than ever.
Michael Moritz, one of the partners at Sequoia Capital, which invested a sizable chunk of the aforementioned $800 million, explained why his firm is far from pressing the panic button.
“The shift in Klarna’s valuation is entirely due to investors suddenly voting in the opposite manner to the way they voted for the past few years,” Moritz said. “The irony is that Klarna’s business, its position in various markets and its popularity with consumers and merchants are all stronger than at any time since Sequoia first invested in 2010.
“Eventually, after investors emerge from their bunkers, the stocks of Klarna and other first-rate companies will receive the attention they deserve”
That means there is an extremely interesting opportunity for angel investors to capitalize during market downturns.
On this week’s episode of Unicorn Hunting, KingsCrowd founder and CEO Chris Lustrino touched on just this topic.
“In the past two to three years, [the] market got overheated,” Lustrino said. “Companies were getting gross sums of money at very, very high valuations … Beyond the growth curves that they could necessarily have.
“So, we’re going through a massive market correction for a lot of these major venture-backed companies. The nice thing for angel investors is, if you haven’t been getting into these deals over the past couple of years, you’re now coming into an environment where companies are being rationalized in terms of their valuation.
“Is [a steep valuation drop] a red flag? Yes, but when it gets to these much lower valuations, suddenly it re-represents an opportunity rather than an issue…
“This is actually a pretty interesting time to get involved with these companies.”
And so, the challenge becomes identifying those “first-rate” companies that Moritz referenced.
Make no mistake, it’s not easy to sort through the bevy of investment opportunities and filter out the best. It’s important to give yourself a leg up where you can.
Well, here at the Angels & Entrepreneurs Network, we sift through all of the active equity crowdfunding opportunities for you and eliminate the noise.
With a team full of angel investing experts, researchers, and legal minds, the deals that come across your inbox are rigorously vetted before approval.
That means when you open a new deal, you can feel 100% certain that a team of qualified professionals has already done a huge amount of the legwork for you.
All that’s left for you to do is consume the information, do your own due diligence, and make the investment decision that’s best for you.
Because at the Angels & Entrepreneurs Network, our focus is on only providing you first-rate companies to consider investing in.
With our help, a market correction is nothing more than new doors opening.