Posted on Monday, Sep 21st 2015
According to a recent report by eMarketer, e-commerce revenues are projected to grow 12.4% annually to be worth $3.5 trillion by 2019. E-commerce is estimated to account for $1.672 trillion in sales this year, contributing to 7.3% of overall global retail sales. By 2019, e-commerce will account for 12.4% of total retail sales. Billion Dollar Unicorn club member Klarna is helping drive this growth by simplifying the process of purchasing for both buyers and sellers.
Stockholm, Sweden-based Klarna was founded in 2005 and has been disrupting the online e-commerce payment market ever since. Klarna was founded by childhood friends and then Burger King colleagues Niklas Adalberth and Sebastian Siemiatkowski. Sebastian had taken a year off before his Masters and begun working in Telesales at a debt collection agency. At his job, he realized that e-commerce merchants were not happy because of the credit loss they experienced. Merchants wanted the debt collection agency to take the risk instead. Sebastian’s debt collecting agency did not want to get involved in that business.
Soon though, Sebastian quit his job and joined the Stockholm School of Economics. The idea of the business was still brewing in his mind. He found enough support for the idea from his friends Niklas and Viktor Jacobsson and the school’s incubator. At a networking event, the three met up with angel investor Jane Walerud, who liked the idea and was willing to provide them both with seed funding and the initial tech team to build the platform.
By 2005, Klarna was set up. The tech team took 9 months to develop a platform to simplify the e-commerce payment process for both shoppers and merchants. Their platform separates buying from paying by allowing buyers to pay for ordered goods after receiving them, providing them with a safe after delivery payment solution. Retailers are, however, paid immediately on the sale of the goods and Klarna in-turn assumes the credit and fraud risk for e-stores. In return, Klarna collects a service fee from the merchants.
Their data driven technology has helped develop accurate algorithms to deliver high sales and acceptance rate on the market.
Since inception, Klarna has helped over 35 million consumers shop online from over 50,000 online merchants spread across 18 countries. On an average, they process 250,000 transactions a day and have 10% market share of e-commerce in Northern Europe. Klarna earns revenues by charging an initial set-up fee and a service fee based on the country of transaction. Fee structure starts at 2.95% of the transaction value. Klarna has witnessed strong financial performance as well. They had turned profitable soon after they went live. Revenues grew 40% last year to €233 million (~$263 million) and net profits increased 39% to €8 million (~$9 million). The company’s profit margins are low as they are investing in international expansion, especially in the US market. Last year, they began their operations in the US and will be adding to the region in the years to come.
Klarna has been venture funded so far with $282.1 million in funding from investors including Atomico, General Atlantic, Institutional Venture Partners, Sequoia Capital, QED Investors, DST Global, AB Ã–resund, and Jane Walerud. Their last round of funding was held in March last year when they raised €90 million (~$101.7 million) at a valuation of $1.4 billion. Recent reports suggest that Klarna’s valuation has grown to $2.25 billion in a secondary offering deal.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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