Klarna CEO says a European tech brain drain is ‘number one risk’ for company ahead of IPO
Sebastian Siemiatkowski, CEO of Klarna, speaking at a fintech event in London on Monday, April 4, 2022.
Chris Ratcliffe | Bloomberg via Getty Images
A European technology talent brain drain is the biggest risk factor facing Klarna as the Swedish payments company gets closer to its upcoming initial public offering, according to CEO Sebastian Siemiatkowski.
In a wide-ranging interview with CNBC this week, Siemiatkowski said that unfavorable rules in Europe on employee stock options — a common form of equity compensation tech firms offer to their staff — could lead to Klarna losing talent to technology giants in the U.S. such as Google, Apple and Meta.
As Klarna — which is known for its popular buy now, pay later installment plans — prepares for its IPO, the lack of attractiveness of Europe as a place for the best and brightest to work has become a much more prominent fear, Siemiatkowski told CNBC.
“When we looked at the risks of the IPO, which is a number one risk in my opinion? Our compensation,” said Siemiatkowski, who is approaching his 20th year as CEO of the financial technology firm. He was referring to company risk factors, which are a common element of IPO prospectus filings.
Compared to a basket of its publicly-listed peers, Klarna offers only a fifth of its equity as a share of its revenue, according to a study obtained by CNBC which the company paid consulting firm Compensia to produce. However, the study also showed that Klarna’s publicly-listed peers offer six times the amount of equity that it does.
‘Lack of predictability’
Siemiatkowski said there a number of hurdles blocking Klarna and its European tech peers from offering employees in the region more favorable employee stock option plans, including costs that erode the value of shares they are granted when they join.
In the U.K. and Sweden, he explained that employee social security payments deducted from their stock rewards are “uncapped,” meaning that staff at companies in these countries stand to lose more than people at firms in, say, Germany and Italy where there are concrete caps in place.
The higher a firm’s stock price, the more it must pay toward employees’ social benefits, making it difficult for companies to plan expenses effectively. Britain and Sweden also calculate social benefits on the actual value of employees’ equity upon sale in liquidity events like an IPO.
“It’s not that companies are not willing to pay that,” Siemiatkowski said. “The biggest issue is the lack of predictability. If a staff cost is entirely associated with my stock price, and that has implications on my PNL [profit and loss] … it has cost implications for the company. It makes it impossible to plan.”
In the past year, Siemiatkowski has more clearly signalled Klarna’s ambitions to go public soon. In an interview with CNBC’s “Closing Bell,” he said that a 2024 listing was “not impossible.” In August, Bloomberg reported Klarna was close to selecting Goldman Sachs as the lead underwriter for its IPO in 2025.
Siemiatkowski declined to comment on where the company will go public and said nothing has been confirmed yet on timing. Still, when it does go public, Klarna will be among the first major fintech names to successfully debut on a stock exchange in several years.
Affirm, one of Klarna’s closest competitors in the U.S., went public in 2021. Afterpay, another Klarna competitor, was acquired by Jack Dorsey’s payments company Block in 2021 for $29 billion.
Klarna brain drain a ‘risk’
A study by venture capital firm Index Ventures last year found that, on average, employees at late-stage European startups own around 10% of the companies they work for, compared to 20% in the U.S.
Out of a selection of 24 countries, the U.K. ranks highly overall. However, it does a poorer job when it comes to the administration burdens associated with treatment of these plans. Sweden, meanwhile, fares worse, performing badly on factors such as the scope of the plans and strike price, the Index study said.
Asked whether he’s worried Klarna employees may look to leave the company for an American tech firm instead, Siemiakowski said it’s a “risk,” particularly as the firm is expanding aggressively in the U.S.
“The more prominent we become in the U.S market, the more people see us and recognize us — and the more their LinkedIn inbox is going to be pinged by offers from others,” Siemiatkowski told CNBC.
He added that, in Europe, there’s “unfortunately a sentiment that you shouldn’t pay that much to really talented people,” especially when it comes to people working in the financial services industry.
“There is more of that sentiment than in the U.S., and that is unfortunately hurting competitiveness,” Klarna’s co-founder said. “If you get approached by Google, they will fix your visa. They will transfer you to the U.S. These issues that used to be there, they’re not there anymore.”
“The most talented pool is very mobile today,” he added, noting that its now easier for staff to work remotely from a region that’s outside a company’s physical office space.
Meta’s Mark Zuckerberg plans to visit South Korea, scheduling key meetings during the trip, according to a statement by Meta on Wednesday, which did not provide further details. Reportedly, Zuckerberg is anticipated to meet with Samsung Electronics chairman Jay Y. Lee later this month to discuss AI chip supply and other generative AI issues, as per the South Korean newspaper Seoul Economic Daily, citing unnamed sources familiar with the matter.
Alex Wong | Getty Images News | Getty Images
Meta extended its ban on new political ads on Facebook and Instagram past Election Day in the U.S.
The social media giant announced the political ads policy update on Monday, extending its ban on new political ads past Tuesday, the original end date for the restriction period.
Meta did not specify the day it will lift the restriction, saying only that the ad blocking will continue “until later this week.” The company did not say why it extended the political advertising restriction period.
The company announced in August that any political ads that ran at least once before Oct. 29 would still be allowed to run on Meta’s services in the final week before Election Day. Other political ads will not be allowed to run.
Organization with eligible ads will have “limited editing capabilities” while the restriction is still in place, Meta said. Those advertisers will be allowed to make scheduling, budgeting and bidding-related changes to their political ads, Meta said.
Meta enacted the same policy in 2020. The company said the policy is in place because “we recognize there may not be enough time to contest new claims made in ads.”
Google-parent Alphabet announced a similar ad policy update last month, saying it would pause ads relating to U.S. elections from running in the U.S. after the last polls close on Tuesday. Alphabet said it would notify advertisers when it lifts the pause.
Nearly $1 billion has been spent on political ads over the last week, with the bulk of the money spent on down-ballot races throughout the U.S., according to data from advertising analytics firm AdImpact.
Watch: Tech still investing big in AI development despite few breakout products.
Technology
Jeff Bezos and OpenAI invest in robot startup Physical Intelligence at $2.4 billion valuation
Sam Altman, CEO of OpenAI, attends the 54th annual meeting of the World Economic Forum, in Davos, Switzerland, January 18, 2024 (L), and Amazon CEO Jeff Bezos speaks during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 2, 2021.
Reuters
Physical Intelligence, a robot startup based in San Francisco, has raised $400 million at a $2.4 billion post-money valuation, the company confirmed Monday to CNBC.
Investors included Amazon founder Jeff Bezos, OpenAI, Thrive Capital and Lux Capital, a Physical Intelligence spokesperson said. Khosla Ventures and Sequoia Capital are also listed as investors on the company’s website.
Physical Intelligence’s new valuation is about six times that of its March seed round, which reportedly came in at $70 million with a $400 million valuation. Its current roster of employees includes alumni of Tesla, Google DeepMind and X.
The startup focuses on “bringing general-purpose AI into the physical world,” per its website, and it aims to do this by developing large-scale artificial intelligence models and algorithms to power robots. The startup spent the past eight months developing a “general-purpose” AI model for robots, the company wrote in a blog post. Physical Intelligence hopes that model will be the first step toward its ultimate goal of developing artificial general intelligence. AGI is a term used to describe AI technology that equals or surpasses human intellect on a wide range of tasks.
The news comes days after OpenAI launched a search feature within ChatGPT, its viral chatbot, that positions the AI startup to better compete with search engines like Google, Microsoft‘s Bing and Perplexity. Last month, OpenAI also closed its latest funding round at a valuation of $157 billion.
Physical Intelligence’s vision is that one day users can “simply ask robots to perform any task they want, just like they can ask large language models (LLMs) and chatbot assistants,” the startup wrote in the blog post. In case studies, Physical Intelligence details how its tech could allow a robot to do laundry, bus tables or assemble a box.
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