Sebastian's Journey From Flipping Burgers → $17B+ IPO

30:31Wow. Yeah. So, and which year is this? 2003, I think. 2003, yeah. So, 2005. You felt like safe the whole time, or were you like, kind of - Yeah, I mean, we were two young guys, right, so we had each other. and I think people were more nervous about us than we were. But there were some incidents and stuff, but nothing serious. I think people tend to forget most people are friendly. Most people are actually friendly. And I felt that way when we were traveling. We had this funny dude that picked us up in LA. He was just crazy. I loved him, Brian. And he drove us all the way to Denver, Colorado, and there.

31:12And he was like, hey, my girlfriend lives here. And we pull up in this neighborhood somewhere in Denver. And this girl comes out that looks like from a high school movie of the cheerleader or something. That's exactly how you imagined an American high school movie. It was exactly like that. And then we end up staying in the family and live with them for a few days. What? Yeah. Oh, my God. This could be a movie, dude. We actually filmed a lot of it. Really? Yeah, we did. Oh, my God. Who's seen it? I don't know how many I've seen it. And when you reflect on that experience, what do you think were the lessons of it or the things that I thought you?

31:52Well, I think that one of the things that definitely made a difference for me, well, there were a few things. First, Nick is my co-founder. He had an amazing patience with me. So I'm very much like, I'm less now as I'm older and I control it better. But I'm quite emotional, right? and I can get quite upset about things and a lot of passion. I'm more Polish in that sense than Swedish. And I think to some degree, sometimes when I got upset, we would obviously fight because we were spending so much time together. Sometimes you end up in fights. And he would just be so patient with me. I have so much patience in those discussions, which to me would force me to reflect that I was sometimes wrong.

32:38And I think it's still, at least I, when I was 20, 20 years old, early, I always thought that I was right about everything. And this just was humbling to have him, it was silly things, we'd be like, you lost the pen, no, I lost the pen, where's the pen we needed? And then, I'm sure you did it, and I was convinced, and he would just patiently talk to me until I was like, shit, you're right, I'm overreacting, or whatever. So I thought that was... So you're spending that deep time with him, you know like forced you to really build this deep relationship build patience built understanding yeah i felt at least that i learned a lot about myself through that experience i think it it changed me and then the other thing that i really reflected on is that so we had it took us 143 days to circumnavigate the globe without flying and it was very inspiring and interesting to, because when you get on a plane, you drive to an airport, you go into this machine, and then you see the clouds, and then you go out of the machine, and you're in some totally other spot.

33:45You don't really see. You're just up in the air. But here, when you are traversing the globe, every day, you can see slowly how the nature is changing, the environment is changing, it's getting hotter or colder, or the sea, and the Pacific, who just went on forever for two weeks. I just got a very different sense for the world, but most importantly, every day was different. When I came back, it was this crazy experience because now I had this, I can barely tell you what I did last two weeks. Here I have an experience still in my life where from almost every day of those 143 days, I can tell you a memory.

34:27I still remember that because everything was new. everything and that just made me to me really embrace change like I love when things move when things change it's exciting and I felt like I had doubled the time of my life because you know suddenly my memory bank was like filled half of my memory bank was just these memories of this trip and and that just made my life twice as long and that was just like something that changed my like appetite for change and constant like learning new things and whatever so So I thought that was very, to me at least, very interesting. And how can you go back to university after that?

35:04Well, after that, I didn't really. So I was supposed to, because when we were in Australia, and that's kind of funny because that was really the beginning also of Klaun as a company. So I remember so vividly because we were on a bus going from Brisbane down to Sydney. And we were supposed to get on a cargo ship that was going to take us to LA. And then they called us and they're like, where are you? and it turned out that I think it was a misunderstanding and we thought that we had 24 hours but we were supposed to be there at the same point of time. So we missed that boat. So we came down to Sydney and then we asked them like, okay, what's the next boat that could take us over the cargo ship?

35:41And like traveling with cargo ships is very different. Like there's not like one every hour, right? So they were like, okay, the next moment that could probably take you is in a month. But like how are you even like convinced to get into a cargo ship? So there was a very special small travel agency actually based in Sydney, who only specializes in people transfer on cargo ships. And this is... It's an interesting business. This is for people who are extremely afraid of flying. Like, I'm talking about people who would never get on a plane. And then there's also a lot of, like, people who travel with horses and take care of the horses and stuff like that.

36:16Got it, got it, got it. So things like this. So that was... And then they told us, like, the next one is a month. And at this point in time, we were like, okay we just got to sleep somewhere and one thing that we had learned is airports are usually open 24 7 so we went to the sydney airport to just sleep there during you know just sit on the benches and sleep uh over the night because we didn't have much money and sitting there i was just watching the takes off takeoffs right yeah i was like it's so crazy because now we've been traveling by the time we hit sydney we've probably been traveling for 60 days or whatever it's like i'm just a few hours away from flying home.

36:54And at the point of time, I realized if I was going to be delayed by another month, I was not going to make it to be able to continue my studies at Stockholm School of Economics. And that meant another gap year. So I was sitting there remembering like, okay, what do I do? Do I fly home and continue my studies? Or do I stay here and continue this trip? But if I do it, I'm not going to be able to continue my studies for another year. but obviously when you go in half the world, you're like, screw it, I'm going to stay on a trip. So we stayed on a trip and when I came home to Sweden, I went back to Uppsala.

37:28I had to wait another year to continue my studies because there was like rules that you have to join on a specific day, otherwise you're, I don't know if it's the same in the US. Yeah, it depends on the school, but they're more flexible. Yeah, okay, and this was not so flexible. So I came back to Uppsala and I was like, out of a job, my parents were like, you're on your own now so you're not even like we're not gonna give you any money for food or anything so I got like welfare checks from you know Swedish and then I went to like this what do you call like the employment agency to find a job I was just desperately looking for jobs in Uppsala and then I found a one of I found three jobs but which I will took so I was working like around there but one of the jobs I took was at a factoring company that was doing like like factoring and account receivables and invoices and stuff like that.

38:18Oh, in Sweden. In Sweden, which was an interesting company. For like SMBs? What? For SMBs? Yeah, exactly, for SMBs and so forth. And it was a crazy company. They were called Acme, S-A-C-M-E. The guy thought it was a great name because that's the name of companies that they always use in dummy presentations like Microsoft. So he thought that was free advertising. Sounds like it. But anyways, and then I started working there. I would work there from like 9 a.m. to 5 p.m. and then I would bicycle really fast to the cinema where I was working for four hours to sell phone subscription, carrier subscriptions.

38:55And again, why do you think you're working so hard at that time? Because couldn't you just stop at five? The money. But like would you have something you wanted to do with the money? Yeah, yeah. Well, I don't know. You're right. I don't know. Why did I work so much? I get why. That's a good question. Actually, I don't remember. And then I worked as a bartender on Friday and Saturday evenings. Wow, that's a lot of work. It was fun. But I enjoyed it. But that's where I learned everything about invoices and accounting. And so those ideas of what eventually became Clon actually started there. Did you even go back to school after that or no?

39:30So after a year, I realized that the company I was working for wasn't that serious. Eventually, it actually blew up and it turned out that there was criminals involved and it was everything. So the whole company blew up that I worked for. And I realized it wasn't the right place to be. And at this time, did you have a plan in your head of what you wanted to do? Were you just taking it day by day? What was, what, you were 20 at this time, 1920? Yeah. Well, I think that like, so since I had, at that point of time, gotten into the Stockholz School of Economics, which was a four-year kind of university, and then after that, you were supposed to get a good job at like Morgan Stanley or Goldman Sachs or work for one of the banks.

40:09So I kind of, I felt that that was interesting, but I was playing around a lot with like these business ideas already, right? And there were tons of them. Like one of them was Alibaba had just came around at that point of time. And I started buying MP3 players and shipping them from China to Sweden and then selling them in Sweden online or, you know. And were you like internet fluent kind of thing? Like you were like. For sure. Yeah. Okay. Yeah. I love Google and playing around with Pirate Bay, obviously, all these sites and all that stuff. So, yeah, I was really interested in the computers very early on.

40:46I got my first computer thanks to actually in Sweden. They had a subsidy program. They called it PC at Home. They subsidized computers so families like mine that didn't have a lot of money could buy a computer. That's very smart. It was very smart. I think it's actually a reason why Sweden has such a high computer literacy and stuff like that. Because everyone had a computer like 5, 10 years earlier than in other countries. But you still hadn't given up on the Morgan Stanley situation. No, exactly. It was unclear to me. And it felt like at that point of time, I guess it's a little bit like it felt like, I guess the easiest way to compare it is that if you are really interested in becoming a movie star or being an actor, sorry, or if you want to be a singer or something, you're not going to really believe.

41:32You don't know. Am I going to make it? Am I going to make it to a level where I can actually pay my bills? So as much as it's a dream, at the same point in time, it feels like it was not a serious one. And your parents are telling you, come on, get a proper education. The whole system pushes you. Yeah, exactly. So it didn't feel like that was something serious. And then I got back and I was supposed to continue because the whole year had passed. So I was supposed to continue my studies. But then already, I was pretty much, I had thought when I was working at this company, Acme, and I had already pushed these ideas of like, because what happened there was like, I started trying to call businesses to sell these account receivables, factoring things.

42:16But the problem was nobody was interested. It was very hard to sell, unless I started calling entrepreneurs. And at that point of time, Sweden had just had this, because Amazon didn't exist. And so there was all these small entrepreneurs that were started in businesses where they basically would buy Google AdWords for cat food that was super cheap at that point of time. And then they would sell some cat food online and they would make a profit on it, right? There's tons of these. And they were all hanging out on something called Webmaster Network, which was this forum, online forum, where all of us were hanging out.

42:49What's the name? Webmaster Network. I don't think it's around anymore. I kind of remember that, actually. Yeah, it was like a light blue kind of skin. Yeah, I remember that. It was very Swedish, so you must have bumped into it. Yeah, because I was really into forums. I grew up in forums. So we were in there, and then basically to them I could sell these services. And then I realized, but the company I was representing wasn't serious, so they were just going to blow it up. And so then I was like, okay, I'm going to go back to school. and then at my school which was also very early there was an incubator which now is very common but at that point it was quite rare.

43:30Really? Yeah. This is like 2004 or 2005? Yeah. Wow. Yeah. There wasn't really a lot of incubators back then. Yeah. It's like very early. Yeah. And they had an incubator and Jenny was the CEO there and I went up to her and I was like okay you know what I had this idea for a company but now I'm back studying again I don't know what do you think and she was like this is awesome you have to do it. Right. And I was like okay now it feels a bit embarrassing not to try and then i was the idea so the idea was pretty much that in a which is actually the buy now pay later thing like basically at that point of time most people in sweden had debit cards right and when you pay online with a debit card for something for physical good you're basically shipping money and then hoping to receive the good well traditionally in sweden and many other european countries and in the u.s actually also on mail order they used to be like a bill me later option because it was just more safe for the consumer to first order the stuff, look at it and say, okay, I want to keep this and then pay for it.

44:29Our idea was simply to bring this mail order payment method into the digital world where a lot of the merchants didn't want to offer it because they were like, what if the customer doesn't pay? What if it's fraud? Blah, blah, blah. We were like, okay, we'll take that risk and underwrite it and do all of that. But it wasn't like early PayPal where they would take the money, hold it until the thing. It was really underwriting. Yes, it was underwriting from day one. So then I met Victor, my other co-founder, basically in the cafeteria. We knew each other a bit, but I met him in the cafeteria in the Stockholm School of Economics and I was just talking to some university friends and everyone was like, yeah, I had this idea, maybe I'll start a company instead of doing this.

45:07And everyone was like, good luck to you. Yeah, it's like you're saying, I'm going to be a famous singer. Yeah, exactly. Yeah, whatever. right and I think the perception at that point of time was like if you started an own company it basically meant that you were self-employed so you may get to a point where you were going to be able to pay your own salary but there was not even like the conception of the idea that like you could you know build into something big right that was not like it was unthinkable this episode of HD and HD is brought to you by a brand that's close to my heart Brex when we started Brex it wasn't just about creating another financial product it was about solving the real gritty challenges that founders and startups face every day.

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46:21So anyway, so I found Victor. Victor was like, if you want to do this, I'm all in. And then Nicholas, my friend, for a time had treated these discussions as just, you know, fun stuff. And then realized I was actually going to do it. So then he come and said, like, please, please, please, can I join? And then Victor wasn't really sure if you wanted him or not in and then like nicholas had to come in victor was technical no victor was more like the finance analyst guy none of us none of us was engineers who was coding so we had a very bad starting that says so what happened was none of us could code so we're just three business guys basically yeah i mean me and nicholas had like faked some html dreamweaver macromedia stuff you know back in the days but that was pretty much it um i had done some hypercard programming with like some scripting and stuff but that was pretty much it but um what happened then was we went to this incubator she says okay you're in right you can come into the incubator and that basically meant like we had a place to sit a computer and they would like fund the very basic stuff at that point of time it was even like you know a printer you know to get the access to printer um so we got in there and then the school throw this like small party where they invited some business angels, right?

47:37And so business angels came there. And Nicholas - What are you doing business agents? Business angels. Oh, angels. Yeah, business angels. That was already a thing in Sweden at the time? Not really, actually. But it was talked about on a very small level, right? There was a few individuals. And there was one woman whose name is Jane Valerud, fantastic woman. And she had, during the dot-com years, she had built a business called Bluetail, which was sold for like$100 million. In Sweden? Yes, which was one of the big exits. One of the few that actually exited before the dot-com bust, right? So she got some money out and she had started to do small angel investments.

48:14And she came to this party. Nicholas did this like elevator pitch for 30 seconds. And were you like keeping up with like US tech media? Like did you know what an elevator pitch was? At that point in time, it was, but it was a super small community, right? And I remember in those early days, the first thing that happened was the big, big thing for us in Europe. That was Niklas Sandstrom and Skype. Because Niklas Sandstrom at that point of time had just started getting some traction with Skype. And people started using Skype for video calls and everything. And then eventually eBay went and bought Skype for like a billion dollars or whatever it was.

48:56And this was like the first example of a European business that was actually kind of part of the tech community and actually sold and was regarded as part of these tech companies, right? It's eBay and the others, right? Because eBay actually had a sound business model, right? Like it actually worked.

49:17So that was a big inspiration to us. And then this was at the time when just Google was about to IPO or IPO'd and Google Maps was just coming out. and I remember that like this was the first time I would like go into Google Maps and I would like Sand Hill Road and I would just oh look that's Sequoia's office but at this point I'm like I thought it was really cool because I was reading up on everything I could find about you know tech community and all that but it was a very niche thing like if I would go and talk to my friends they were like what VCs tech like all of that was very foreign they were like Goldman Sachs Morgan Stanley, McKinsey.

49:51But for me, it was really cool. I was really inspired by this community. Yeah, so anyways, so Jane, we pitched, did this elevator, Jane comes up to us, and then Jane says, okay, but you don't have any engineers. Like, who's going to build the system? And she says, I know some engineers that are really, really good. Okay. So she brings us these engineers, five of them older. They were like, at that point of time, let's say we are 20, they maybe are in the 40s or something, right? somewhere maybe more 35, somewhere more 45, 50. She says, look, these guys can code it. They came in and they said, okay, we will code this for you and in return we want equity.

50:32Where were they from? It was like Ericsson or something? Yeah, exactly. They were from Ericsson. They were from Ericsson and they were using this functional programming language called Erlang. You know Rex was building an Elixir. Oh, really? Yeah, built on top of Erlang. You see? That's how I know Ericsson in Swedish. so they were like Erlang they had almost like one of them was like the friend of the guy who invented Erlang and it was like a strong Erlang community oh wow yeah so I was very very geeked out on that language and the functional programming language so anyways and they came in and was like we'll build this for you and that was the first time we made a mistake because basically Jane was very nice she said look I'll invest in this you get you know we were like we want$40 ,000 right and she said no you need $60 ,000 and I'll take 10 % of the company.

51:22We were like, okay. And you probably thought, oh, wow, my net worth now is like, I'm worth like$100 ,000 or something. So we were like, okay, so she was going to give us$60 ,000 for 10%. And we had a business plan that showed that that's what we were going to need until we come to profitability. And then the tech guys were going to come in, the five engineers, and build the first version of the system. But were they like a little company? But like, which is five-year-old. Yeah, so they had an idea back then. They had an idea back then that they were going to do like a VC, but instead of pushing in money, they were going to push in code.

51:56That was the idea, basically. But they didn't need money to support themselves. They were like independent. So we first thought that they were going to join full-time, but it turned out once we had signed that they were still doing their full-time jobs. They were like part-time. Yeah, so they were doing it during the evenings and stuff like that. So they took 36 % of the company for that. And then, but they were great engineers. So, I mean, they started coding in December. And was it all in Erlang? All in Erlang. Okay. Erlang. And a database. But Erlang was maybe more fine, but they used a database.

52:33It's called Niche. Are you familiar with Erlang? No, never. It's basically a database where, I mean, no SQL, where you just dump things. And then you keep everything in memory, right? Which wasn't maybe the best choice. No, but this is 2005? Yeah. Wow. Because like NoSQL started becoming like more like a, you know, hype-y thing like way later. And they were that, Jane was selling it on the idea that like one of the great things with this thing, guys, is that you're going to be able to just push in new machines, like just new computers. You're just going to scale it, you know, over multiple machines.

53:06That's like pretty, like, it's so interesting. This is like very forward-looking. Yeah, yeah, yeah, for sure. This would be a great choice for a financial company, but it's very ahead of its time. The problem is they didn't build it that way. Eventually, we were sitting with one of the most expensive machines in the world anyway because they're scaling on only one machine. No, but it's true. Directionally speaking, it was a lot of interesting stuff. The engineers joined. They started coding in December. We went live with the first customer in April, which was about 45. And then it just started scaling for Swedish perspectives fairly quickly.

53:42So actually, already in August, September, we were starting to turn a profit. And then explain exactly what was like the V1 of the product. So very simple. It was basically, and this was also the thing, because I had done my year previously in a factoring firm, I had started talking to all these people at Webmaster Network, all these entrepreneurs that were running small e-commerce businesses. so one of the first we signed for example was Yarno which had a website called Nelly and Nelly was basically selling it was a little bit like an early skins of Kardashians but like I think 20 years earlier so he had like basically found like Linjiré for where it was like D2C yeah D2C and so basically he hooked on Klana his he basically offered Klana as a payment we once you click Klana We underwrite the customer in real time.

54:39Yeah, the consumer. How did you do that underwriting of the consumer? In Sweden, it's very specific because in Sweden there's something called a social security number just like in the US, but everyone has it. It's 100 % public. It's not as sensitive as in the US where people are sensitive about it. Here in Sweden, it's like everyone knows you're... I can call and find out what your... Social security number. It's right, and I can even call and ask what your income is. It's public data. Yeah, everything. So because of the digitalization that was happening, credit checkups, credit lookups had dropped from$15 a piece when they were still done under PayPal, with mail paper, down to 50 cents due to this digitalization shift.

55:25And so what we could do in real time is a customer would come in, okay, I want to buy clothing at Nelly, and then they would put it in the checkout. They would go to the end of the checkout and then basically enter the social security number. We would do a real-time credit lookup, took no time at all, underwrite it based on that and then basically say yes or no. So there was like a credit bureau quote unquote in the country and then you just look it up. We used them up, we looked it up. And then we would always ship to your registered address which in Sweden is like fully transparent and so by doing so it was hard to fraud the system.

56:00But we were obviously nervous. I mean, we started with this in April, and then we knew people were given 15 to 30 days to pay. So we were just sitting there hoping that people would actually pay the risk. And how did your cash flow the thing? Well, that's the funny thing, right? Which is one of the things that I think is super geeky, and I think you have to be like, I'm not sure everyone's going to appreciate it, but I, being very geeky, and you're going to appreciate it being geeky and fintech as well. But actually, what we realized is that basically we were selling three things to merchants, right?

56:28Like one, we took the risk. Two, we took the administrative burden of collecting money when people didn't pay and like reminding, sending reminders and stuff. And then thirdly, it was the cash flow issue. But a lot of the entrepreneurs that we were selling to, they were so early in their business days so they didn't really think about cash flow much. So what we ended up doing was saying like, hey, we'll take the full risk, we'll take the full admin, but we won't pay you until the customer paid us. So as a constant, which is kind of funny, because we were basically selling a factoring idea, but we weren't basically, we had positive cash flow.

57:06We had the opposite cash flow. Oh wow. As a cost, so it's like, so it's a very odd idea. So our return on equity was like huge. How much did you charge at the time? We also charged a lot. Like we charged like 3 % plus, no, but 3 % plus like a$1.5 fee for every transaction. Got it. Which ended up to being like higher percentage. Yeah, but the crazy thing also was at that point of time, which is, this is unfortunate. This is an unfortunate consequence of how the Swedish, because in the U.S., when you're in debt, you get forgiven, right? And then fairly easily, and then you can kind of restart your economical life.

57:44In Sweden, it's been very like Lutheran, which basically means that once you're in debt, you're always in debt. Oh, I understand. Plus. So there's no bankrupt, like personal bankrupt. No, no, there is, but there wasn't even back then. and it's been very tough. And then in addition to that, also the government is an extremely efficient enforcement agency. So what happens - So everything is digitized, everything is public. So what ends up happening, if you don't pay your bills, eventually the government will go to your employer and take the money before you get your salary. Oh wow. That's how efficient they are.

58:17So they created an extremely efficient enforcement. Wow. And then also people, and then there's been for another crazy reason, and no caps on interest rates. So what has happened was that this was an unhealthy market in Sweden where these credit debt collection companies could make a tremendous amount of money on fees and interest from buying debt, from carriers, phone carriers, or electricity companies and so forth. So the crazy thing is that we would buy an invoice or a purchase at 97%, so 3 % in fee, right? So we would buy it at 95 % value. We would run it through, we would take care of it, do the reminders and everything.

58:59And then at the end, when we were selling it to debt collection agencies, they were at that point of time giving us 100 % of the face value on the debt, just because of how the Swedish system works. Just how efficient it was, they know they could collect. Exactly. So it's, and again, I've had a lot of like, as I've gotten to know this system and understood it, like I've tried to

59:51try to argue for Sweden change. oh wow, you're 18, now you get to buy whatever you want, and five years later it's all forgiven. So you know, like, people say like, okay, what do you want? Like up to 500 reais, 1 ,000 reais, whatever they give you in a credit card, you know, you can just do it, not pay, and then yeah, five years later you're done. So I think it's probably like, you know, as always, like the best solution is probably somewhere in between, right, like, but Sweden probably took it too far, too. Yeah, I feel the US is like really good. I think so too. I mean, Swedish people are often quite skeptical all about the US systems because they call it like a capitalist country and you know, it's so tough on people.

1:00:27I mean, to some degree when you walk around in San Francisco, you can see also that side of it. But like, but in this regard, I think Swedish is much tougher than the Americans and probably not in a good way. Yeah, yeah. I think the US went through the route of like everything is so private. You know, the credit bureaus are private. Like the credit is private. Like there's a lot of, and in the banking system, so many banks, right? Like capital is so efficient. I think it's, Definitely one of the pros of the US, I think. For sure. The credit system, it works really well. That's why there's so much credit in the economy.

1:01:00There's some oddities, though, like you need to have credit to have better credit rating. That's kind of it all. Yeah, yeah. There's some pretty odd stuff. Then, you know, like you looked at the time. It kind of makes sense how it built up, but now, like, it makes no sense. Yeah, exactly. The final outcome of it, you know, like, I think works pretty well. So then, okay, so then that started scaling up pretty quickly. And then, you know, but this is like 2005, right? Yep. So what was, I guess, like, you know, if you were to divide the story of Klarna in a few chapters, like what would be the kind of like main chapters?

1:01:31We were really a sales-driven organization back then, right? We were profitable from the very early days. Did you start getting a salary kind of? Yeah, but not a big one. Like we would basically, so in Sweden when you study, at that point of time, you would get about$700 in kind of a loan to support yourself on a monthly basis, which you had to then pay back when you're older, right? And those - There's a lot of social security in Sweden. Yes, we like that kind of stuff. So it was$700. And so we just gave ourselves the equivalent of that and lived that kind of student life, but continuing working instead.

1:02:06And we worked. I mean, one of the things that we decided for ourselves - And you didn't ever finish university? I did eventually. Oh, you did? Yeah, I did. Because my parents were bugging me all the time that I needed to get an academic degree. And even when I had like 30, we had 40, 50 employees and were profitable, my parents were still like, okay, that's fantastic. When are you going to get your degree? You did it? So I did it eventually. Me and Victor, I didn't bother to have good grades, but I just went and did it. Okay. Yeah, all the exams. So 2005, you're paying yourself$700 a month. Yeah, and then the other thing that was important to us was, we, at the top of the time, we were like, okay, if we're going to do this, because there was always a huge decision.

1:02:47Oh my God, for the rest of my life, am I going to do this instead of Goldman Sachs? And what does that mean? Whatever. That's kind of a silly way of thinking. But I mean, it makes sense when you're that age and you're like - Right, because there are opportunity costs. Yeah, exactly. And so then we said, let's just do this for six months. But do it really, really hard. Because in that incubator, there was a lot of other student companies but those were people who would like come in between exams and do one hour and like talk about something and then go out it was kind of fake it was kind of fake and we were like that's never going to work so we're like we're going to eat breakfast here together like 7 30 a.m every morning and then we're just going to work right and we worked until like 11 p.m right like every day and we just sat there and i remember that summer because there was no ac uh in the building where we were sitting this doesn't have no ac anywhere here right yeah that's true and so There's these funny pictures where we sit in our underwear working.

1:03:41I remember us because we always wanted to have great service. Obviously, we had customer service already to call us. Then we wanted to have open a professional company. A lot of it was like, okay, we're starting a fintech company. We have to look professional and look like we're - Yeah, fintech was not a thing at that time, right? Exactly. That's why we wanted a name that looked serious. We were actually called creditor back then and not Klarna. and we were like, we had a phone number with a lot of zeros at the end so it would look like, you know, it was a big yeah, exactly, business cards and all that kind of stuff but then I remember us, we'd always go out in the park and eat lunch and then like if a phone called during lunch you'd be like, oh sorry, you got connected to the wrong line and then you would like run back to the office to sit by the computer to help, so no, but like, and then it just started we started realizing like you know, shit, this is actually working, right It's actually scaling.

1:04:36And we were just like continuing. Now, the big challenge we had was that those engineers that built the first version, when they were done in summer with like a working prototype, which is what I would call it, they were like, okay, we're done. We're going to go and do something else. With 35 % of the company. That's rough. And we were like, ah, but you know, like we had understood it as they were going to, if the company would take off. They would keep doing it. Yeah. Because they won a lot of it. Yeah. And this is where like Jane, in order to do all the great things, sometimes I tease her about sometimes, is in this fight between me and the engineers, Jane said at some point at a time, like Klona is never going to be that big of a company that it can employ five great engineers like those guys.

1:05:20So it's kind of funny. I always tease her about that. But the thing is that like, so at that point at a time, they basically left. And suddenly we find ourselves three business people who've never coded, don't have that deep understanding, trying to run what is predominantly a tech company. Our first engineer that we hired, we got welfare grants for hiring. We were like, oh, that's great. The government pays us to hire him. Maybe not the way you should think about it. And then after that, we hired our first CTO, who was a good guy. He's a good guy, but was definitely not as strong and tough as you need if you're going to scale it up.

1:05:59And do you think those five guys, if they had joined full-time, they would have been good enough kind of thing? Not sure about their managerial skills, to be honest. But I think from a coding perspective, we would have been a bigger company today. Got it. If we would have had the first two years with them instead, we would have been a bigger company. Because they were just working at a pace. I mean, I still remember sitting with them when we had our weekly meetings, and the amount of things they shipped code-wise every week. In comparison to everyone that came after that? It was impressive. I got to say, like these guys are, like the other guys, I mean, some of the other guys that came in were good, but there was also a lot of people who weren't at that level.

1:06:37And you couldn't like convince them to like. No, and we got into a fight about this, because, you know, we just had different expectations, right? And I don't think they ever, I think they also had, in my opinion, partially what seems to play a role, because like they couldn't see themselves being euphority reporting to a 23-year-old CEO, right? Like that was just my. Yeah, especially like somewhere that you haven't seen examples of that, right? No, exactly. In the US you have Bill Gates and stuff. Yeah, exactly. But in Sweden, not a lot of examples. So I think that was a part of it and they wanted to do their own thing.

1:07:07I mean they did well. They started another company which they sold for some money so they did well. Then they - They kept their equity? Are they like super rich? No, they sold, which I was a little bit happy about because I think it's more from a fairness perspective. It just didn't feel fair. Yeah, exactly. And so they sold a lot of their equity eventually to somebody else. Because what happens, Cloud didn't actually raise that much money until like 17, 18. And most of the transactions that were publicized were just secondary transactions. So people were just like, because we didn't need much money, right?

1:07:37We were growing, but we were profitable all the time. And was it like kind of linear growth, just every month a little bit better? Or there were like little moments of, you know? So I remember, I mean, I think I still know the numbers by heart. It was like, I think first year, first year was$150 ,000,$300 ,000 revenue. I think the second year was$1 million, and then$1.2 million. That was$3 million. That was$9 million in revenue. Then it was, you know,$27 million. What was your frame of reference to even know if this was like working out? So I think, no, it was definitely by Swedish standards, and in a Swedish environment, it was really good.

1:08:15Got it. So there's this competition in Sweden called Dagens Industri Gasell. Because, again, everything in Sweden is public. So even private companies, all their numbers are public. Right? So you can check. So basically, they have these criteria that you have to be profitable, you have to be growing more than X, et cetera, et cetera.

1:08:36And then they announce the winner, who is the fastest growing, most profitable, best company in Sweden every year. Right? And the point is that we, and you can get the award if you reach the criteria, but then you can also win, right? So like minimum criteria, then you are a member of that kind of club or, you know, whatever. But if you also then have the highest growth, then you're like the winner. And Klana is one of the few companies that 11 years in a row made the criteria for being a member. and when they went back now and looked, we were the second most successful over 15 years time period.

1:09:16And it's actually not entirely true because if we registered in February, if we would have registered earlier, two months earlier, we would have won the whole thing, right? We were the most profitable, like the best winning company in Sweden. Even compared to Spotify because things like even Spotify was loss making. Oh, yeah, they were loss making. Yeah, exactly. And the criteria is profitable. So obviously by Swedish standards we did really well. So you were like happy during this time? No, I was never happy. You never had it. Because my standard was obviously Google and Facebook. Oh, that's a hard standard.

1:09:49I think about it as like, okay, if you're Zlatan, our most well-known football player from Sweden, of course you dream about winning Champions League. Of course I always dreamt about winning versus those companies. I don't dream about winning here, Al-Svenskan, which is the local. I want to go there. That's the dream. I think most football players have that dream. Then you realize maybe at some time, like, shit, I'm not going to make it, or, you know, whatever, because it's too difficult or something, you know, didn't play out in your career. But to me, it was always like, I always want to build a Google.

1:10:22And when did you start then going to, like, I'm going to get out of Sweden into, like... So this is the silly thing, and I would have done this very differently. But at that point, again, we had nobody to look at. And so we were like, okay, most of the companies we were looking at, they were going from Sweden to Norway and Finland because that's kind of natural that you do Nordic. But the funny thing is like Norway's, you know, half the amount of people that Sweden is and so is Finland. So these markets are super tiny, right? I think about that now often. I went the other day, I was in the US and I was going to Washington from New York on the Amtrak.

1:10:54Just sitting there and I'm going to these places like Philly or whatever. You look at Philadelphia and you're like, shit, you know, this city is bigger than most of the markets that I started with. Like, you know, that's so huge. But so we went to - It's also not easy, Mark, because it's a different language. Exactly. It's not like it's like, you know - You still have exactly the same complexity as a lot of like American companies will face when they start going outside of the US. But it's for super tiny markets, right? Yeah. So that was obviously the wrong decision looking back. We should have done Germany much earlier, you know, et cetera.

1:11:26But to us, Germany was like, I mean, it was so big, so far away. Like it was a huge step, right? And what was it about it that seemed to you? Or was it just like the language was different? The language was a big market, you know, different size of companies. It was just like, it was just a different game, right? It was just huge. So it took us, it was only in 2009 that we launched Germany and Netherlands. At that point of time. But then I thought two, that's four years in, right? Yeah. Yeah, I know. So pretty. So we had done like Norway and Finland by that time. We had some success in those markets.

1:11:58But, yeah. So I think the early days was really figuring out the engineering side. and we tried with that CTO. And maybe one of the most annoying things to me was that one of the five initial engineers that were on that first team that built it, he stayed on on our board. And this was very Swedish, I'll tell you a very Swedish story. So he was on our board and he was supposed to be our engineering advisor. And over the years, I started suspecting that we were not moving at the speed and we didn't have the right approach to tech. I started feeling like... You had some intuition around it. Yeah, but because my guys, the guys, engineers back then, they wanted to talk about Erland, functional programming languages.

1:12:45They were totally uninterested in payments. Yeah, the business side. No, they were just like, whenever I started talking about that, they were just like, can you just give us the requirements so we can just code it and can you just go away? And I was like, is this supposed to be that? Can't I have an engineer that's actually passionate about the business? Yeah, that cares about what we're doing. Doesn't that make sense? And so I had all these discussions and so forth. But as much as I may have been upset or didn't like it, I was then going to my board member and he was always telling me, no, it works well.

1:13:19This is how it's supposed to be. And I was like, okay. If I'm getting that advice, okay, fine. Maybe I'm wrong, right? Especially if you're non-technical. I feel this is like such a common thread of non-cyclical founders. They just get screwed by engineers. You just tell them stuff and they're like, okay, I guess. But I think it's like, I mean, sometimes people will describe me as tough. I'm so tough. I'm this and that. And I just feel like that is so not true when you look at situations like this. It took for four years I listened to advisors and people telling me that I was wrong. and I listened and I was respectful and I listened to that and I had advisors telling me that like, no, you're expecting too much, it's not going to work like that.

1:14:07But it turned out like when I look back, my intuition was right all the time. This company in Klana would have been more successful, bigger and faster and greater today if I would have followed my intuition instead of listening to that advice. They just didn't have the experience and they were giving me the wrong advice. But I wasn't crazy running around and being tough. I was listening. And I was like, to some degree, misled, right? Be cautious with whose advice you take, right? But in the end, what ended up happening actually in this situation is I felt more and more like we're not good at tech.

1:14:43And this is when, and the first time I got in touch with Sequoia, like the reason that was such a big thing for me was that Sequoia to me was gonna put a big brand stamp in the face of - When was that? 2009. Oh, it was pretty early, too. And it was going to say tech company, right? Because at that point of time, everyone questioned, are we a tech company? No, you're just some factoring payments company. You're not a tech company. You're not like Spotify. You're not tech-enabled. You're not tech-enabled. You're just like some economical finance business with something. So people were questioning that, and that was also hard.

1:15:17We couldn't recruit the best engineers. We had all these issues. And so I wanted the stamp of approval that we're a tech company. So when I got in touch with Sequoia, that to me was like, here we have the chance to become a tech company. How did that happen? How did you get in touch with them? There was this company which was a co-investment between Sequoia and Index called Stardoll. And the guy running it was a guy called Matthias Miksche. And the CTO of Stardoll was Daniel Ek, the founder of Spotify. And there was tons of tech companies around that company. A lot of good people out of tech have come from Stardoll.

1:15:52And it was this funny, like it was basically an online portal where girls could dress dolls online with like different clothing and stuff. It was like a full tech company. Yeah, yeah, yeah. And I went, Matthias had gone to talk with Sequoia Economics. So I asked him for lunch. I said, hey, you know, we're thinking about raising money. Do you think somebody like Sequoia could be interested? And Matthias was like, never. You know, they're never going to invest in a European company. Forget about it. But then two weeks later, Chris Olson, who used to be a partner at Sequoia, young guy at that part of time, he was running the growth fund.

1:16:26And so he calls Matthias and is like, hey, are there any interesting companies in Europe? Right? And he's like, well, actually, you know, I talked to, I had lunch with this guy two weeks ago, so you should call him. So Chris then calls me and he's like, hey, I'm from Sequoia, blah, blah. And I was like, and I missed the call, so I had it on my own stream machine. And then I had heard that, like, you should do this as dating. so I had to like I was so keen but I had to like not call back in three days I waited for three days to go back to some this is probably one of the most useful things University got you really because I don't know if my kids were probably taking your call or for sure you know yeah for sure University got me out the network for sure yeah so call back Chris and then eventually and then Chris says oh by the way like he comes and visits us and he's excited and he says by the way I heard you going to London Michael Morris is going to be there so we had breakfast with Michael Morris and did you know who Mike Morris was yeah I read up at that part of the time right like you know Google and YouTube and YouTube what's going on so it was it like meeting like you're like a super fan for sure yeah for sure I was a groupie you know yeah I know it's cool so I thought it was amazing we met Michael but then we basically gave Secolla exclusivity on deal right and they ended up buying secondaries primarily they bought 25 million dollars investment at 100 million dollar valuation so they got 25 which they had basically not been diluted that was the engineers that they yeah exactly they took out the engineers and some others and uh but the funny thing is that when then chris when he was going to present this idea this offer was it just before we go that was it weird for you that like these random engineers got so much money at the time yeah of course right like imagine like it's like 25 million dollars like so much money you know these like random people it's crazy it was crazy already yeah um but none of the media in sweden was interested at that point of time because we were not a tech company so it wasn't that interesting so it's like they didn't write about us at all so all of these stories were actually very little reported really yeah not at all kind of later on happened but But anyways, so, but then what was funny is Kristen flies to Stockholm to present this offer.

1:18:32So he comes in and then he does this beautiful pitch. I don't know if Sequoia still does it, but it was like, here are the Apple founders in the garage and here are the Google founders in the garage and here's Klana and you're going to be the next, you know, next. And we were like sitting there just like, oh my God. And so, but then I felt like I have, I can't just be Swedish, be so nice. so when he walks out of the office I feel like I have to say something cocky or whatever so I say look Chris just one question if you really believe we're the next Google how come you're the only one from the Sequoia partnership that flew here to this meeting and Chris then goes I'm so sorry they couldn't make it and you know whatever that was bold and then the funny thing is but it's so impressive how freaking good they are Sequoia So like he basically walks into the elevator.

1:19:28The elevator shuts, you know, closes the door. And two minutes later, Michael Morris is calling on my phone. And I'm like, hello? Oh, it's Michael Morris. I'm really sorry I couldn't make the meeting, you know. But if we're allowed to make this investment, I'll join the board. Oh, wow. Which was obviously huge for us because not only were we going to get Seqlund, we were going to get Michael on the board, right? But like was he just offered that out? Yeah. As it basically because I had said like, you know. Wow. So that was like. I don't know what to take from that lesson. To be a little bit cocky sometimes.

1:20:03Yeah, exactly. I guess it works. So that was how we got Sequoia. And then Sequoia came in and they talked to our management team and they said, look, you know. How big was the company then? What? Like revenue wise, like 10 million revenue kind of thing. In 2009 would have been like 25, 30 million dollars in revenue. So they paid like 3x revenue at the time kind of thing. Wow. It's a great deal for them. A year later, we got a billion dollar valuation. Oh, wow. So it was... No, but then they talked to my CTO and they were like, you know, Sebastian, honestly speaking, first time I'm getting real advice, honestly speaking, nice guy and everything, but if you want to take it to this level, this is not going to work, right?

1:20:41And at the same point of time, I had done something else, which was also very helpful for me, which is because I had had so many debates with this guy and the board member and everything about whether engineering was good enough or not. And then I decided to book. I was so tired of these conversations that weren't leading anywhere. I felt intuitively that things weren't working well, but I couldn't prove it. And I didn't feel like I had the experience because I was an engineer and I've done this. But what I did, which was really smart, I always recommend it to people nowadays, is I then did one thing.

1:21:16There was a few successful tech companies in Stockholm. There was like Dice that does electronic arts bot that was like a gaming company. There was a poker gambling website that was huge, etc. So I booked a meeting with the CTOs of those companies. And then I went there together with my CTO and sat down with the CTOs of these respective companies in meetings and just asked questions. And the fascinating thing is when I came there to these very successful companies and asked like, do you have to be like this? Should we recruit like this? Should the culture be like this? Should we ship code like this?

1:21:50Et cetera. The CTOs of these other companies were saying exactly what I intuitively believe to be right. And I kind of added how your CTO was feeling. No, but the funny thing, it wasn't even that, but that shows you something else about management. We went out of that meeting and he felt that they had also confirmed everything he said. Oh, interesting. And that's how bias works, right? Yeah. We people are prone to hear the things that speak. Selective hearing. Exactly. So when I came out, I was like, yeah, it was amazing he said that. Oh, but that's not, didn't he? Like, no, but he said more this.

1:22:25And then I realized, okay, we are reading this very differently. And then I realized we had to part ways, me and that CTO, right? And so, and then I took that decision, which is a difficult decision, as it always is. But yes, but that was a great learning from a perspective, right? Totally. And that's why I like the value of the ecosystem too, because you wouldn't have, you don't know what grit looks like until you go and like. And I think that's the huge difference with the valley, right? I think if I would have been in the valley doing the same thing, people would have told me these things much earlier and I would have gotten that feedback.

1:22:56But sitting here without any, you know, any ecosystem is difficult. And when was it that like, you know, obviously, and I always say this is probably one of my biggest difference between building companies in Brazil and the US was that, you know, when When I was in Brazil, my competitors were so lame. They were like, they're not that good and they were slow. Then I got to the US, dude, that market is competitive. People have a good idea, people copy it and you're always on your toes. When did you start feeling like the competitor? Like, oh wow, I need to start thinking about competitors and how the market's reacting and going faster and raising more money.

1:23:34Like, wouldn't that kind of... We built this business in these, you know, northern European markets, being profitable, growing fast, had our pains and struggles, but it was never like that. It was never that competitive, to your point. The competitors were more lame or less aggressive. Obviously, with, like, the rocket thing happening with the Sandberg brothers and so forth, Europe started changing in 2009 and 2010, and there started to be more aggressiveness in the market. but it was still different. In 2010, we felt like we were invincible and we were growing fast and we were doing really well and profitable.

1:24:14And at this point in time, we were like, hey, we shouldn't just do buy an appellator. We should do a full PSP solution, right? So we had this idea of checkout. And checkout, the idea was that we were going to offer like card payments and local payment methods and everything. And then I remember I went to this board meeting and I said to my board, I was like, look, we're going to do this and we should be careful because there's two startups that look very, very dangerous. One is these two young Irish guys that have really understood the importance of great APIs and engineering-led payments, sort of Collison.

1:24:51And then the other ones were these Dutch guys who were doing their second large payments. Oh, wow, so you're pretty aware of these. I was 100 % aware. And the funny thing with Peter Denopen from Adyen. And Adyen was already much bigger than Stripe at this point. Adyen was bigger than Stripe, but do you remember those guys, they were doing their second payment startup because they sold the first one to Barclays, which is called, I forgot the name of them. They sold that one. And they were also a bit lucky because they had signed, what was the name of the, Groupon. They had signed Groupon. At that point of time, Groupon was growing like crazy, right?

1:25:25so they were just a bit lucky with that and they had something running that wave yeah but I was like no I'm gonna go check out but I was still the biggest at this point in time Klarna was bigger than Adyen and Stripe oh wow yeah yeah so I went down to Peter in Amsterdam and I had this meeting which I always laugh about now I told Peter so many times about this but like I'm coming to Peter and I'm like you know I'm probably what am I like 28 at this point in time and Peter is like 40 or something or 38 and I said to Peter I was like look Peter I'm gonna start check out business it's going to wipe you out, so you better sell to me now." And I tried to push him into selling, and he was just sitting there like, no, not going to happen.

1:26:06So anyways, I told my investors that we're going to do this, we're going to compete in the PSP industry, right? And obviously, if the investors would have listened to me, they would have made a lot of money, because what actually happened is Sequoia invested in Stripe. That was not taxed to me, but still. and then the fun thing is I had General Atlantic. Anton Levy was on my board. They invested in Adyen, ended up investing in Adyen, making a lot of money. But Klana didn't really execute on that vision, right? So we launched Checkout. We got a lot of success with it in the Nordics and we processed 50 % of all online payments in Sweden.

1:26:43So it became a huge thing. But then coming to Germany and so forth, it was slowing down and this was due to a lot of engineering and product. There was tons of reasons for this. Like real execution stuff. It was execution, basically. And I remember when I look back at now, because Adyen launched 50 payment methods in Asia. And then I got upset, and I was like, guys, I can see the momentum at Klana is not there, because we were struggling to add one payment method in Germany, called Sofort, which we also owned ourselves. So it's like something's different in the execution speed here between Stripe, Klana, and Adyen.

1:27:16so it became evident to me that we were falling behind and at this point in time Victor, my first co-founder left in about 2011, 12 and then me and Niklas were running the company as co-founders the problem for us was that we became a little bit like an old couple by this time when you say something, I don't listen to what you say anymore I already know what you're trying to say so that's the problem you stop listening to each other I know what you're supposed to say You were trying to say this. Yeah, and you kind of know which direction each other is pushing to. So it wasn't good relationship anymore.

1:27:53And then the problem was that people within the organization, not everyone, but some people would, especially, you know, some people who were, I would call them troublemakers, they would play that to their advantage. So they would play us against each other and be political about it. Divorce parents' kids. Exactly. Exactly. And so it created not a great setting. and I feel that the company, in my opinion, what we did between 12 and 15, not everything was bad. There was tons of good things happening there as well. We actually figured Germany out. We made Germany profitable. So there were some good things that happened, but it was a very messy time.

1:28:28It was just chaos. And I was trying to understand what it meant to lead a company of that size. And so in 15, Niklas decided he wanted to leave. And to some degree, one of the benefits about that, which I always say, is that it didn't really matter whether he was right or I was right. But at least it was consistent. Exactly. And then the other thing is, the other benefit with having clarity around that is that if something, if I wanted to do something, and then even if we did it, I may have listened to Niklas and altered it slightly, just slightly, the decision. And then something went wrong. My brain was always going to tell me it was Niklas' fault because he said me to alter.

1:29:11If I would have done it my way, it would have been different. The difference is, When you suddenly have single accountability, you have nobody else to blame but yourself for things, right? So I think that one of the benefits was that like once it was clear and he decided to do something else and I could only blame myself from that time on. And I think it was healthy for me as well. I felt I accelerated my learning because there was nobody else to point fingers at. Yeah, it was like it's the, you know, joint accountability is hard, right? In that sense, it's very hard, right? It's just like, it's my, you know.

1:29:39So, but in 2015 then, we basically Adyen signed Spotify, which was like our biggest competitor signing our best neighbor. And then Nicholas and I parted ways. So, it was a little bit like, and the problem was Nicholas wanted to sell his stock because he wanted to give all to charity, which he's done. And then at the same point of time, two of our larger investors, GA and DST, they had invested in 2010 at a billion dollar, which was a little bit too early. We got that valuation too early. So they came in at a fairly high price. And then the company hadn't been able to live up to the expectations.

1:30:20So in 2015, it was clear that we were maybe worth like two billion, but it wasn't like the 10X thing that DST or GA had hoped for. Do you regret that? Do you regret raising a billion or no? No, I don't know. Yeah, a little bit. I think that you shouldn't push valuation too high, actually. I think it's not good. It's better to get it at a reasonable. Because it's kind of a lesson that if a VC tells you ahead of time, you will definitely not believe it. But when you go through the process of going up and down, you definitely have an appreciation for it. And I think also in our problem, the problem was that Victor had put together this Excel model of our growth, which was basically just taking a line and pulling it out forever.

1:31:00It wasn't much foundation under it. So it was a little bit embarrassing when we didn't hit it and stuff. But anyway, so in 15, it was kind of this, you know, suddenly 25 % of our cap table is for sale because these investors want out. They pushed a little bit for an IPO. Me and Michael felt it wasn't ready for that. And we wanted to continue. But I had to refresh the whole management team. At this point in time, I had a lot of executives that I've hired. I realized it didn't really deliver on the level I was hoping to. So in 2015, I kind of promoted a few junior people that had been with the company now for 10 years because now the company was 10 years old.

1:31:33And I put them in management positions instead. And then we decided to kind of find a new direction for the company. At this point in time, we were like, okay, forget this checkout thing. Stripe and Adyen are going to nail it. There's no point. I mean, we could obviously pretend to be almost Stripe or Adyen and then sell to Ingenico like Bambora did here in Sweden or something. But you can do that. But it's not going to be, you know, it's going to be a Google outcome. that's going to be a more reasonable outcome. But we wanted an unreasonable outcome. And so at that point of time, we're like, okay, what if we go down the B2C track?

1:32:04What if we become some kind of like, you know, neo bank? And there was at this point of time only like simple that had made a little bit stuff. There wasn't like much going on. But you already had a relationship with the consumer at that point. Exactly. We had a relationship with the consumer. We felt like that's something that's very valuable that we can do something of. So we formed this new direction in 15, which is actually the same one we're still executing on. And it was basically that like we were going to, we still had this like which is funny now because now people think it's so obvious but like we said in the future, you wake up in the morning, your digital financial assistant will say, hey, I analyzed your mortgage tonight and I realized I could save you 20 bucks by moving from bank A to bank B on your mortgage and the only thing you need to do is to say yes, I'll file all the paperwork and do all the friction for you.

1:32:50Like that's eventually where financial services is going to go and so as a consequence of that we were like okay if that's true what do we want to be in that world like where are we going to be well the most attractive thing to be must be to be that financial advisor of yours because at least then you get five dollars tip for you know for moving your mortgage or saving you some money on your mortgage right so we said okay so that's the thing that we have to become and then like why us we're like okay there's going to be fintechs there's going to be banks and there's going to be tech companies that try to be that right that was clear already then so say okay well colin has a few advantages to be that so we said that's the big hairy goal we're going for So we're going to transform and pivot the company way from checkout again and into this direction.

1:33:28And so we started working on that. And one of the first things we realized was that, okay, what did we learn from 10 to 15? Well, we learned that the checkout idea that we formulated in 10, it was the right idea. We understood the industry because Stripe and Adyen became together at that point of time, $100 billion worth of market cap. So we had an understanding of the business, but we had a lack of execution. And so we said, okay, that's the learning. if this new big hairy goal that we formulated now, this digital assistant, maybe we're right again. And maybe that is like a$100 billion or a trillion dollar type of outcome if we nail it.

1:34:02But then what are we going to do different this time around from an execution perspective so we actually set ourselves up to be more likely to succeed? And so the first 15 to 17 was just rethinking the whole operating model, how we worked. At this point in time, we had kind of cycled through the 20 % of creative time, free Coca-Cola, Lego in the conference rooms, you know, you name it. The shit that Google fucked up. Exactly. Exactly. We've done all that. We learned it didn't work. We gave people a ping pong table. Oddly enough, we didn't ship more products after we had a ping pong table in the office.

1:34:32So we removed the ping pong table. People were a little bit annoyed. But then, you know, and such. So like, we sacked through all that. But in 15, we got a new management team who really understood the business. We were starting to execute on this. Did some changes in 17. But then I wanted to come back to your question, which was the US competitiveness. So at this point of time, a little bit by luck, actually. The UK team comes to me and says, in the UK, we think that what Clona should do in the UK is like a buy now, pay later model. It's interest-free and we do this. And I told them, no, people have credit cards in the UK.

1:35:05That's never going to work. Forget about it. It's been tried. They did not listen to me. They just ignored me and they went and did it anyway. And then 12 months later, I came back and they were like, so what's your business plan for the UK? Yeah, we have this idea for the buy now, pay later. but I told you guys you're not allowed to do this and like and they were like and we're going to start with big companies like you don't start with big companies you start with small merchants like and they ignored me again and then 12 months later they were live with ASOS and it was a smashing success so I was lucky that for once people didn't listen to me and so you started seeing that and then I started hearing rumors about this Australian Nick and Afterpay was starting to have traction with the same model in Australia right and so at this point in time we realized that, okay, it's going to happen in the US.

1:35:52It's going to work in the US. Now, to add to that, we have the fun story with Max. So Max Levchin, already back when Sequoia invested, they offered me, as part of the story I told with Chris, they offered me a call with Max because he was PayPal and he was close to Sequoia. So I had a call with him. Which is this? 2010. And at that point of time, and he is at that point of time at Google because they had acquired his startup. Yeah, social media companies. Exactly, right? So I talked a little bit with him, not more. And then a few, passed forward a few years, and then this guy called Alex Rempel, who was running a company called TrialPay.

1:36:30Yeah. And he's now, I think, at Anderson. Anderson, yeah. Exactly. So Alex starts calling me. He's like, hey, I think it's really interesting what Clona does. And I was like, this was the first time talking about the valley, right? So you have to remember, I'm the cousin from the countryside when I come to the valley. I feel like I'm from Sweden, just like you must have felt from Brazil. So I'm craving for some attention and interest into my Swedish company in the valley setting. And so when Alex, out of trial pay, is the first one in the valley who actually starts caring and engaging and asking questions.

1:37:04Most people were like, okay, Sequoia asked us to take a meeting, so we're going to sit here for one hour and listen to you. And then off you go. And he's interested in the details of the model. Yeah, exactly. So I start detailing up. This is like December or something. He started talking. And then after one or two months, he says, after I told him a lot, and Alex is like, hey, you know what? I think you should talk to my friend, Max Levchin. And I was like, oh, cool. I can talk to Max again. And then I thought I would try to bring Max to the board. So we end up having breakfast in San Francisco.

1:37:37And I come to Max and I tell him, look, because already then I had started having this idea to move away from checkout and move into what we are right now. So I sit with Max and I lay out everything. I was like, hey, we should do this. And Clon's going to be an issuer. And we're going to do this. And we're going to launch our own card. And we're going to do all this stuff. And Max just sits and listens. And then he says afterwards, he's like, would you be willing to send me your data records? Like 300 ,000 customers. It could be fun to play around and do some credit risk modeling on them. And I was like, oh, wow, he's really engaged.

1:38:08but then my my chief risk officer at the time Ohad Samet who now runs his own business very successfully and he's my neighbor by the way which is fine but he says are you crazy you're not you know you're not sending our customer data to MaxLift and I was like no you're probably right that's a bad idea that sounds kind of crazy and then it was just silent and then four months later I hear a rumor somebody tells me Max is starting a Klana clone oh wow and so And then they announced the firm. And were you in the U.S. yet or not yet? We were not in the U.S. Okay. So to me, this was a big blow because I was like, oh, my God, you know, a firm is now going to launch a competitor in the U.S., the market that I always dreamt about.

1:38:52Because to me, it was always like, if I'm ever going to build a Google, I have to do it in the U.S., right? Like, I'm not going to be able to do that in Europe only. So this was a big blow. But, and then I also felt like after that, I've always said to myself as a rule, when I meet founders, I'm always like, look, if they ever start talking about things that I'm planning to do with Lana, I'm always like, stop, stop, stop, guys. Just so you know, this is something that we may be contemplating of doing. Like, don't tell me. Because you don't want to have that. Like, you don't want to have that bad karma.

1:39:21Totally. So anyways. Totally. So I had this, like, so in 17, 18, surprisingly to me, a firm hadn't gone faster. I thought Max was going to spin up that business and get more traction faster. but it wasn't moving as fast as I thought so Affirm didn't look like that strong at that point of time and then you had Afterpay and Nick coming in with that in 18 and 19. Did they look stronger than Affirm at that point of time? Yeah because Nick was a freaking amazing sales and marketing dude. Like Nick had his capability of just creating a sense of urgency and of losing out and he was able to get this sense into these retailers that if you don't get his product you're gonna lose out on some huge opportunity.

1:40:04That's something that Max, you know, Max is a great data engineering guy, but he never got that like sense of like - Yeah, he's not a sales guy. He's not a sales guy in that sense, right? So Nick did that in amazing fashion. And so then you're in this situation suddenly where, okay, so now, after pay goes, and the first customer they found in the US was Urban Outfitters. So one of the first customers, Urban Outfitters, goes live, and you start hearing rumors in the markets like 19, that like shit, this is gonna work. and this is where what you talked about happened because now I finally realized, okay, and I remember Michael Moritz then calls me out of the blue and says, you know what, Sebastian, if you ever want to go for the US, I think that now is the last shot.

1:40:44It's now or never, right? And I was like, okay, I got to nail this right. So I went to the US, 19, and I realized, unfortunately, we had the wrong team, the wrong people. Like everything was like we were not set up for this. And I remember like Nina even tells me the story. I was calling from LA from a room. I was there to try to convince Richard at Fashion Nova to become a customer. And like I was there and I was calling. I was like, hey Nina, I'm here in the US. It looks like a disaster right now. We have no customers. Like the product isn't working. There's no, we don't have any really people that's going to make this work.

1:41:22Like whatever. And then we were just like, okay, but we have to give it all. Like, we can't miss out on this US opportunity, to your point. And we realized that, like, there was one thing, right? Like, two, three things really happened. Like, one, first we said, okay, the problem was we had a better product. Really, we did. Like, because we had been working on it for 15 years. 15 years, yeah. So, like, it was better than Afterpaste. But the problem was we started ending up in a situation where it's like you don't get fired for choosing IBM. So, the point is that we were selling to this head of digital commerce at some retailer.

1:41:55They would say, well, look, you have a better product. Thank you for the presentation. But, you know, my competitors have already chosen Afterpay, so I'm going to go with them as well. Right? Like, we started having that, and we were like, shit, we're never going to get ahead. Like, how are we ever going to break that path if Afterpay is always more logos on the website than we are? So we came up with this thesis that we were like, what if we can't win on the merchant side, but we can win on the consumer side? So what we did, it was kind of funny, is we launched an idea we'd had for a long period of time, which was our app became a browser.

1:42:29So you couldn't just use it as to look at your purchase history. You could also use it as a browser. And then we created a virtual card solution. So you could go into our browser, you can go to Amazon, and you can issue a virtual card and then pay with Plana at Amazon using a virtual card. Oh, and that worked. It worked. But the most important thing, it worked because then I can go to a merchant and say, you know what? Yeah, it's true. logos than we do. But the difference is we have H &M, we have this, we have that. And the point is when they sign, when a consumer signs up with, you know, ClawNow on H &M, they can download our app and they can instantly use us everywhere as opposed to off-to-pay they can only use here.

1:43:08So you're bringing demand to them as well. Exactly. And consumers feel they can use it everywhere. And then we used one metric, which was App Annie. So we had App Annie downloads of our app versus off-to-pays in the firms. And then the only thing I told my marketing guy, Sandstrom and I talked about, we were like, okay, one thing we're gonna do, let's make sure we always have more downloads. So we would pay like tons of money to just make sure that our downloads were always - Yeah, there's always more. Yeah, yeah, yeah. That's smart. And it didn't really matter if all of those like users were actually using it or not.

1:43:37It was just the downloads that counted. So we were always like, look at our downloads. They're 3X higher. And it took some time for Optipay to figure it out. And then they started paying for downloads as well, right? Like when it was like a little bit late. So, and that was one thing. And the other thing is we worked the network extremely hard in the US, which was like, you do that in Europe as well, but it's a little bit different. But in the US, the only thing, we were having these long sessions. We called them stakeholder mapping. We would take a retailer, we'd look through LinkedIn, look exactly all the connections.

1:44:05I know somebody that knows somebody that knows there. Then we would have operations people help us write emails. So we started sending out of my inbox two, three hundred emails a day to people that I knew on my LinkedIn to ask for introductions to somebody, to ask for introductions to somebody. And then we were booking 30-minute sales pitches. So we were very lucky that this happened during COVID because of COVID. Before that, I had to travel between these merchant meetings in the US. But because of Zoom, you can just like... Zoom, right? So actually during 2020, at the peak time, I personally did 1 ,000 phone calls or video calls.

1:44:45and the way it worked I did my normal day job in Sweden and then I would go home with the kids and then I would log in because it was US time zone yeah yeah so you can still work more and then I worked and so I mean it sounds a lot like a thousand but if you think about it 50 weeks that's 20 meetings a week you know half an hour that's 10 hours 10 hours and then split it up over three evenings and you've done it right and that was what moved the needle so that got us ahead of afterpay in the US market so it's just you know It was like just hard fucking work. It was freaking hard work. And then we had set up a whole operating model where we had great teams spread out in New York, you know, San Francisco.

1:45:24So I would call, I would take the first meeting, and then the team, the local team, would like jump in on the call and then like pick it up from there, right? And so we just worked this. And how did you feel when Azure got acquired? No, I was happy. You're happy? Yeah, I mean, because from my perspective, it's bought on the wrong premises. which was something I learned myself. It is one of the things that fintech companies and banks are always obsessed about, which is own both sides. So Visa Network has a separation between the issuing side that gives you the card and the acquiring side that does that.

1:46:00And then tons of companies have grown to different sizes at some point in time and said, I'm going to do both. And it never works. And I saw it myself, because when we were trying to both be an issuer offering Klanas payment methods and being checkout. The only thing that happens is, do you think Adyen wants to work with me? Stripe wants to work with me? They don't want to distribute my payment methods because I'm a competitor, which makes sense. They're not going to like it as much as they're going to like to distribute something that isn't competitive. The problem is you have is, okay, Square buys Afterpay.

1:46:33They can distribute Afterpay, but Afterpay's distribution with other providers automatically becomes less functional because people are just not keen on selling something that's they is also a competitor yeah so I think that like and then the problem is like even in Sweden one of the issues I had checkout became so large right became over 50 % of the e-commerce market in Sweden and then you think oh it's great because I control the checkout so I'm going to position Klana ahead of Visa or something else and I'm going to like but it just doesn't happen in practice you know what it works but it works short term so you could do that we tried it you put Klana ahead of Visa we got 20 % more share of checkout for two months until the customer figured it out and went and picked the visa button instead.

1:47:19These tricks, they're very short-term. They work, but they're short-term. The other problem with it is it also gives the organization an excuse to sort of say so be lazy because if you have automatic preference, you don't have to fight for having real preference. and so as a consumer product you become worse because you're already always being selected anyways yeah you don't have to earn you don't have to earn it right yeah and that's actually bad for the organization and bad for the long-term success of the company so it's actually better to have to fight for consumers wanting to click your button instead of somebody else's button yeah then this idea that like you're going to control it and you're going to push something It's a bad idea, but I understand why I've had that experience.

1:48:07I've done the mistakes myself, but I see new people in the fintech industry. Yeah, you hear it all the time. Yeah, and I think that was Jack's idea, and I see why Jack thought it makes sense to do that with Afterpay. I would have thought it makes sense as well if I hadn't experienced it once. Being in the details in the ground. Yeah, exactly. Last question, I'm curious. Next year, it's 20 years, right? Yeah. guys let's do it and obviously the motivation went back then from you know kind of like just having a better life and all that like you talk to your parents to now you probably have this like extremely strong kind of mission duty covid you know there's a lot we didn't talk about uh you know that happened at that time but you know if you think about the next 10 um what do you think kind of like what is the next thing for you you know and i guess for the company there's you outline a a little bit of the vision, but I think for you as an entrepreneur and CEO, what do you think about it?

1:49:00Well, I think obviously the big question that none of us has the answer to is like, how fast is this AI thing gonna go, right? And what is it gonna mean? You know, a few years ago I was on a Sequoia event and this was at the height when Klana was like, the most valuable FinTech in Europe, blah, blah, blah. And we're sitting there at stage and then Patrick, and they asked this question, which is like, where do you see yourself in the future? and then Patrick gave some answer and I can't hold myself so I was like look I've had this idea for a very long period of time which is that like eventually things become more and more efficient and the computer does more and more of the work and like at one point in time when it's time for me to retire maybe I'm the last man in the office and I'm just like tapping my computer on the head and saying like thank you and then I like close the office and walk out because I've also been replaced by the computer and it's like that's okay like you know it was a fun ride yeah i learned a lot but like i you know and i understand that people don't take it that lightly but you know who knows what this will mean like maybe you know ai will mean that you know people won't have to work anymore and will just enjoy life i don't know maybe that's could be the way things play out for me it's sad because obviously part of my being me is the sense the fun and the excitement and the challenge of my work i'd rather lean into it and learn it and understand it and you know i've spent so much time the last two years now with ai and just getting really my hands dirty and try to build things with it and learn it and i find that super fascinating so for as long as that you know for as long as sam and opening i and the others don't build an agi machine like at least you know there's some more years of fun right yeah and I just want to make the most out of those years awesome and hey thanks so much for meeting me in Stockholm and thank you having your home country here and it was great I learned a lot cool thank you thanks to our friends at Atomic Growth for helping with production and distribution

1:51:19Thank you.