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Startup Feature
Why European investors said No to Klarna

A few months ago we featured Klarna and the delay of their upcoming IPO. Their plan is to take the startup public in the U.S., but this isn’t the first time that they are looking to raise capital outside of Europe.

The Swedish ‘buy now, pay later’ startup, has had a rollercoaster journey. Founded in 2005, the startup has become one of Europe’s most valuable fintechs, peaking at a $45 billion valuation. However, when the three co-founders first wanted to raise capital for their idea, nearly every European investor said no. The one yes they received became the single most valuable angel investment ever made.

How a €60,000 investment turned into billions

When Klarna’s founders pitched their idea in 2005, skepticism ran high. European investors doubted whether consumers would embrace “buy now, pay later” payments. Despite being a success for the new market of Millennials, the investors of 2005 were highly critical of the business model.

After repeated rejections from VCs and notable early-stage investors in Europe their idea remained without any funding to create. That was until Jane Walrud, a Swedish angel investor, handed them a €60,000 investment for 10% of the startup.

That early backing became one of the most valuable angel investments in history. At Klarna’s peak valuation of $45 billion, Walerud’s €60,000 stake was worth $4.5 billion. Her belief in the founders gave Klarna the funding to start and the credibility to attract merchants while the investors that had previously said no started to take notice.

Focusing on U.S. investors

Despite gaining traction after its first angel investment, Klarna faced challenges raising significant capital in Europe. European investors remained cautious, and there was a lack of investor capital for their startup to scale globally. Instead of continued rejections, the Klarna founders decided to focus on the U.S., where venture capital firms were more willing to back high-growth startups.

In 2010, Klarna caught the attention of Sequoia Capital, one of Silicon Valley’s largest VC firms. Known for backing companies like Apple, PayPal, and Google, Sequoia recognized the potential of Klarna. The firm invested $155 million into Klarna, marking its first major European deal and providing the startup with the funding needed for their expansion. It marking a turning point for Klarna with U.S. investors on their doorstep.

Silicon Valley beats Europe

Klarna’s pivot to U.S. funding reflects not only the limitations of Europe’s startup investments but also the opportunities unlocked by aligning with global growth-focused investors. Although more investors have taken an interest in backing European startups, it is still far behind that of Silicon Valley.