(Bloomberg) — Sequoia Capital has named a new board member for fintech Klarna Bank AB, seeking to quell a conflict that has ensnared the storied venture capital firm, its high-profile former partner and one of the largest startups in Europe.
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The saga stemmed from disagreements between two of the founders at Stockholm-based Klarna, said people familiar with the matter, and in recent weeks pitted partners at Sequoia, which is a major Klarna backer, against the firm’s former partner, Silicon Valley heavyweight Michael Moritz.
The drama became public earlier this month, when Sequoia’s lead partner in Europe, Matthew Miller, took the unusual step of calling for Moritz to step down from his role as Klarna’s board chairman. Moritz, the Sequoia veteran who left his investing duties at the firm in July, had been an early backer of the startup. Miller, who was named to Klarna’s board in January, appeared to have his firm’s support for the request. A Sequoia spokesperson had said “a series of governance changes” were needed at the startup.
But days after reports of Miller’s decision surfaced, Sequoia reversed course. The firm told Klarna shareholders that Moritz would remain as chair. And Miller was out.
“Upon a fuller assessment, we’ve withdrawn our EGM request,” a Sequoia spokesperson wrote in a statement, referring to an emergency general meeting. “We fully support Michael as chairman of Klarna.”
At the root of the dispute were simmering disagreements within the fintech company between two of its co-founders, Chief Executive Officer Sebastian Siemiatkowski and Victor Jacobsson, according to people familiar with the matter. Moritz, a staunch ally of Siemiatkowski, was also drawn into the fray along with Sequoia, said the people, who asked to remain anonymous discussing private information.
The moves stemmed from tensions over Jacobsson’s role, one person said. Jacobsson still holds a considerable stake in the company, and wields influence via a board representative.
As the events unfolded, Siemiatkowski flew to the Bay Area to smooth matters over with Sequoia, said one person familiar with the situation. The firm declined to comment on the flight or the dispute. But in a statement about backing Moritz, added, “As we have already stated, we’re excited to continue to back Sebastian and Klarna on their path to IPO and beyond.”
Miller, Moritz and a Klarna spokesperson declined to comment. The Information previously reported on Sequoia’s bid to unseat Moritz and its reversal.
The public fracas is a rare stumble for the venerable VC firm, which is undergoing a major transition. In 2022, it named a new leader, Roelof Botha, and split from its China division the next year following political scrutiny over its investments. Moritz’s exit from investing was another sign that Sequoia was refreshing its top ranks.
After joining Sequoia in 1986, Moritz made early bets on technology giants, including Google and PayPal, rising to become one of Silicon Valley’s most famous investors. When Moritz left his partner role, Botha wrote to Sequoia’s financiers that the firm would work to “smoothly transition” his board seats to others.
Miller, a Sequoia partner for more than a decade, opened the firm’s first European office in 2021. At the time, Klarna was one of the firm’s most prized holdings in the region. When Miller arrived in Europe, the startup was the continent’s largest, with a $45.6 billion valuation.
It’s had a steep fall since. Klarna, which began by offering buy-now-pay-later loans, suffered particularly from an end of easy credit and low interest rates. It slashed staff, and investors cut its worth: In 2022, Klarna raised financing at a $6.7 billion valuation, a fraction of its previous price tag.
Sequoia first invested in Klarna in 2010 and has backed the company in subsequent rounds. The startup has shown some signs of a rebound. In November, Klarna reported its first profit since early 2019, and it’s focused more efforts on e-commerce and artificial intelligence services. CEO Siemiatkowski has signaled that he wants to take the company public soon.
When Klarna raised its recent down-round, Moritz was its most vocal defender. “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,” he said in a statement in 2022. “Eventually, after investors emerge from their bunkers, the stocks of Klarna and other first-rate companies will receive the attention they deserve.”
On Wednesday, Siemiatkowski said in an email to shareholders that Andrew Reed will be the new board member from Sequoia, replacing Miller. “I believe Andrew to be a perfect fit for Klarna and am excited to work with him going forward,” Siemiatkowski wrote in the e-mail, reviewed by Bloomberg. “I appreciate 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.”
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