How Klarna's IPO prep got tangled up in a boardroom drama

The last thing Sebastian Siemiatkowski needed was boardroom drama. 

The 42-year-old chief executive officer of the Stockholm-based fintech Klarna had spent months getting his company in better shape ahead of a possible public markets debut. He had also embarked on a risky bet that he could replace many of his customer-facing employees with generative artificial intelligence. 

The strategy was working: By the end of 2023 the company had narrowed its losses 76% to just 2.54 billion kroner ($250 million) as he curtailed expenses and more customers kept up with their loans. With usage of Klarna's products soaring, the company invited a coterie of Wall Street's biggest banks to begin pitching it on how they would take the financial technology giant public.

Then Siemiatkowski got word of trouble brewing inside his boardroom. Klarna in January had appointed a new executive from the venerable venture fund Sequoia Capital to the board: Matthew Miller. Within weeks, though, Miller was looking to make governance changes and sought to oust Klarna's longtime chairman — and former Sequoia heavyweight — Michael Moritz. 

Their fight, it turns out, reflects an uglier skirmish between Siemiatkowski and his co-founder Victor Jacobsson. The clash soon spilled out into public view, with Sequoia issuing a pair of flip-flopping statements within days of each other. Siemiatkowski jumped on a plane for San Francisco to meet with Sequoia's top dog Roelof Botha. 

To outward appearances, the ordeal was quickly resolved: Miller was ousted, Moritz remained in place and a new Sequoia partner — Andrew Reed, a Moritz protégé — was installed. But behind the scenes, Siemiatkowski and his estranged co-founder have continued to clash on key governance decisions, in a battle that's now being waged in private meetings and through competing financial stakes. The two have fought over how the company will go public and how much control its CEO will ultimately have in that entity, moves that come ahead of what's potentially one of the year's biggest IPOs. 

One source of tension between the co-founders is the possibility of listing with dual-class shares, giving more control to current shareholders. Public investors have been known to balk at such a structure in the past.

"In this market, where IPOs have been fairly threadbare, you have to be exactly the right type of company," said Bobby Reddy, a professor of corporate law and governance at the University of Cambridge.

A spokesperson for Klarna declined to comment beyond an earlier statement that said Siemiatkowski appreciates the "long-standing support and partnership with Sequoia and Michael, especially now as we accelerate our exciting journey towards IPO in the era of generative AI." Representatives for Sequoia and Jacobsson declined to comment for this story. This account is based on conversations with more than half a dozen people familiar with the matter, who asked not to be named discussing non-public information. 

Burger Flipping

In the early 2000s, Siemiatkowski was on a break from college and living on food stamps when he landed a gig at a factoring company that offered loans to small businesses in need of cash to pay for their invoices. The job gave him the idea for a business called Kreditor and he soon recruited Jacobsson, a classmate at the time, and a third co-founder Niklas Adalberth — who Siemiatkowski had previously met while flipping burgers working at Burger King — to make a go of it.

In those early days, Kreditor was largely just the European version of PayPal — an online wallet that made it easier and safer for consumers to transact online. In 2010, Kreditor changed its name to Klarna. 

Soon, Moritz came on board. Already a Sequoia veteran, Moritz had served on the boards of some of the world's leading internet and financial services companies including Yahoo, PayPal and Google. From the beginning, he would fly to Stockholm for board meetings and he ultimately formed a close bond with Siemiatkowski on long cycling rides through Sweden's backcountry. 

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Somewhere along the way, Klarna decided to focus more on the consumer side of its business and adopted its iconic pink branding. The company is now a fully-licensed bank that offers savings accounts, a shopping app and a credit card. It's also one of the most prominent providers of buy now/pay later products, which allow customers to split up large purchases and pay them off in three installments without paying any interest. 

Klarna now has 150 million customers and it's handling almost $200 billion in payments volume every year. But usage of Klarna still pales in comparison to the likes of credit cards running on Visa and Mastercard networks. Siemiatkowski, known for his scrappy streak, largely despises banks' credit-card practices and is a vocal opponent of the way those firms charge interest. He's not afraid to name check and deride rivals publicly. 

Jacobsson is decidedly more low profile. He ultimately departed the company in 2012, though he still has a stake and continues to wield some influence over the company's strategy via his board representative Mikael Walther, who declined to comment.

Relations between Jacobsson and Siemiatkowski have soured as the two clashed over differing approaches to corporate governance. One recent flare-up centered on the firm's push to set up a new British holding company, which was meant to be another administrative step in its path toward a public listing. 

Both founders have preferential purchase rights that allow them to hoover up shares of Klarna on the secondary market. They've created special purpose vehicles, which would enable them to buy up more of that stock so they can benefit from any appreciation in Klarna's share price, though Siemiatkowski's K Friends Partners 2022 AB hasn't bought on the secondary market, according to one of the people familiar.

In order to create the UK holding company, Klarna is looking to eliminate those preferential purchase rights. Siemiatkowski, Sequoia and Heartland — an investment vehicle for the family behind clothes retailer Bestseller — has supported the move. Yet the removal of the preferential purchase rights irked Jacobsson, who's privately lobbied shareholders to vote against the decision to re-domicile the company, citing concerns that the way Klarna was pursuing such a move paved the way to give more control to Siemiatkowski.

"Sebastian has supported, together with Sequoia and Heartland, the removal of currently held special rights, for the benefit of the company and all the shareholders collectively," a spokesperson for Siemiatkowski said in an emailed statement. "This change is part of the move to the U.K. and it was communicated to shareholders in November."

The firm's shareholders still have yet to approve the U.K. holding company. 

Tensions have also flared as Klarna's largest shareholders have asked the company to consider creating a special class of shares that would hand current investors, which include the likes of Siemiatkowski and Sequoia Capital, more control over company decisions after its public debut. 

Jacobsson has opposed a structure that would give special shares to Siemiatkowski. The CEO's spokesperson said there are no proposals that would introduce any new special rights to "any individual or select group of shareholders."

IPO Ambitions

With the boardroom coup aborted, Siemiatkowski has turned his attention back to his IPO prep work, with Klarna having met with a parade of hopeful investment banks aiming to take his company public. In those early talks, Klarna was considering seeking a valuation of around $20 billion, Bloomberg News reported last month.

Despite the public fracas, Siemiatkowski had plenty of good news to share with the bankers. The company had spent months working on a new AI assistant after asking OpenAI's Sam Altman if Klarna could be his firm's first major guinea pig. Just weeks into the debut of the chatbot, the CEO knew he was onto something. Klarna said the technology was doing the work of 700 full-time customer-service agents and it's now on track to help improve profits by $40 million this year.

Once Europe's biggest startup, Klarna's valuation reached $45.6 billion in a 2021 round before falling to $6.7 billion the following year, as rising interest rates forced investors to reconsider backing online lending platforms. K Friends Partners, Siemiatkowski's SPV, spent about $50 million buying up shares as part of the down-round, according to people familiar with the matter.

But the firm's work with AI, along with the improved earnings, is driving shares of Klarna that trade on secondary markets to higher valuations. There, the company is commanding a valuation of about $9.5 billion, according to Caplight, an aggregator of secondary market transaction data.

"The company's fundamental performance improved in mid-2023," said Javier Avalos, Caplight's CEO. "It was easy for secondary market investors to justify paying higher prices."