Klarna Founder: Even $45.6 billion can’t buy happiness - Niklas Adalberth

0:02I came to Las Vegas, went out to eat the expensive seafood that I don't really like, or the wine that I couldn't pronounce or didn't even take a difference of. Went out to shop like crazy or Gucci Prada and whatever. And then coming back to the hotel room and then up in my hotel room, I actually started to cry. Just had this feeling of, wow, is this what a successful happy life is?

0:29The person telling that story is Niklas Adelbert. He's the co-founder and former deputy CEO of Klarna, the Swedish fintech unicorn that provides payment services for online storefronts. At one point, they were valued at a whopping$45.6 billion. But this is far more than a typical founder story. Finding no real happiness in his gargantuan success, Niklas found himself hitting rock bottom in Vegas and left Klarna in order to found the Norsken Foundation in 2016. He wanted to find meaning, not money. Norsken call themselves an impact ecosystem on a mission to help entrepreneurs make saving the world their business.

1:08Nicholas is now less interested in unicorns than he is in impact unicorns, companies that positively impact one billion lives. But for someone who focuses on doing good, I was surprised to hear that Nicholas's first experience of entrepreneurship was a brush with the law. I was born and raised in a town called Uppsala. It's like 200 ,000 people, one hour north of Stockholm. and I was the middle child, one older brother and one younger sister. And I remember for as long as I can that my father always said that, Niklas, you can do whatever you want in life as long as you become a doctor, like him, right?

1:44From very early on, I had this performance-based self-consciousness. So if I perform, that's like a strategy to feel maybe extra loved or get the attention to be seen. because the thing was also that my father and my brother was real extroverts, almost like comedian extroverts. They took all the attention at the dinner table. And me being an introvert, I didn't really, I guess, felt seen to that extent. So performing well was my strategy to be seen. So I loved to play around with computers. I was a Mac user. It was not that much fun to do with Mac users. I played around a lot with graphic design and eventually got stuck on Warcraft 2, the game.

2:27Just loved to be in that flow and just the time passed without you knowing it right and became quite good at it. So kind of painting this picture of the introverted nerd. Yeah, at least semi-nerd, I think. I mean, at least not as extroverted as my brother that I wanted to be and competed about everything, basically. But all this changed when I was 13 years old. I was standing outside the local supermarket in Uppsala. And out comes a friend, a one-year-old friend with a cage of beer. and in Sweden you need to be 18 year old to buy beer and we were all like hey what's going on how did you accomplish this and he showed us this fake ID that he made himself and it looked awful but still like good enough for him to be able to buy cigarettes and beer and me and my computer geek friend were really impressed and like wow I think we can do that so much better so we went home to our computer started to experiment And this was right when the color printers and color scanners came out to the market.

3:33And we actually were able to produce a quite good-looking fake ID. And being 13, I looked maybe that I was 11, went to the local kiosk, tried to buy cigarettes, and I was able to do it. It actually worked. And so we were showing off this to friends, and they got interested. We produced more. And we started to advertise this on the internet called Myrk back then. It was like a first version of Facebook or something. And this business actually grew. And my brother's friend got interested in this as well. So I sold some fake IDs to them as well. And I got recognized in town. And so finally, I got this external recognition and was seen for the first time.

4:20And that was a fantastic feeling for me. But this didn't last forever, of course, because we started to forge food coupons and cinema tickets and stuff as well. And eventually a person got caught and then the entire thing exploded. And eventually 32 people got prosecuted. But luckily, Sweden is very mild on first time offenders. So it was only a heavy fine for me and my friend. But also like a great, great learning. Both, I mean, never worth to be on the wrong side of the law. In the end, when we were 15, right before we got caught, we were always nervous when the kid knocking on the door or when the phone rang and so on.

5:02But also that it was actually quite fun with entrepreneurship or whatever you're going to call this, right? And finally, it was really fun to make money. I mean, during this time, I got addicted to not only computer games, but candy. But candy, I ate a lot of candy and pineapple pizzas and probably being the richest kid among my peers at least. So I really changed course that I don't want to become a doctor. I wasn't smart enough for it anyway, but instead I want to pursue business. Yeah, it's interesting. I wonder how many doctors order pineapple pizza. I think a great question of, you know, have you stayed true to your roots?

5:42Are you still the same guy as, you know, do you still order pineapple pizza? I do. Yeah, yeah. I think once you go pineapple pizza, you never go back, I think. Yeah, and this is kind of like the sign of good things to come as well, right? I guess before we move into that, I'm curious, you know, what did this teach you about authority? No, good question. I think Sweden in general is probably one of the less hierarchical countries maybe in the world. But with that said, I think I always had like an authority respect for people. But with that said, I think that, I mean, with this experience, I sort of also learned that to maybe not stay within the given rules and to look outside of that.

6:15So I guess it's like a mix of it. So you've managed to evade the police. You're fine. Did that wipe out all of your earnings or did you still come away sort of net profitable? I think maybe net zero, I would guess. I mean, they probably didn't grasp the full extent of the total revenue I made here. But I mean, everything was wasted on pineapple pizza. So there was nothing left anyway. So I had to start to work at Burger King and later on cleaning airplanes to pay off defines and did the military service and then me and my friend from seventh grade Sebastian that I eventually went on to start Klarna with and we decided to go around the world without flying and this was a time when these like docu-sopes reality tv thing so they were just about the expedition robinson and so on or survivor I think it's called in English and we got this idea like why don't we go around the world without flying and we try to film one hour per day and then maybe we can sell this to a production company or whatever, and then we can be seen or recognized.

7:14So we went off. We went. We got all the way to Australia, but then we missed our boat, our cargo ship across the Pacific Ocean. And this meant that Sebastian that was studying at business school, he couldn't get into his finance master's because he had to write a final exam. He couldn't do that. But we wanted to still pursue this trip. And so we did. We went all the way around the world without flying. They got the bottle of champagne that we had digging down. And being back then in Sweden, Sebastian has to pass one year, try to find a job. And the only job he could find in the end was to be a telesales person at a finance company.

7:49He started to call different customers and they all didn't want his services, but eventually got in contact with e-commerce companies. And they said that, hey, we would love to offer an invoice-based payment solution so people can actually buy now and pay later, touch and feel the product and then transfer the money. So Sebastian thought about this, presented it to the management and said that, hey, what about if we do like a simplified risk assessment before we allow the person to get credit? They were not that irresponsive. So he quit that job eventually, wrote his final exam, got into the master's program, but he couldn't get rid of this idea.

8:22So he went around in school, presented this to different friends and eventually me and the third friend, Victor Jacobson, decided to, hey, why don't we give this a try? It sounds like a quite smart idea. And so without that missed boat, there will clearly be no Klarna today. So it's all about coincidences in the end. So interesting, isn't it? It's all about where other people see, you know, mistakes or failures. Actually, there's an opportunity. You just need a long enough time horizon to realize it. And also, you know, some perspective looking back, you know, something that a lot of people don't do right is sort of reflect back on the journey and be like wow there really was that pivotal moment that felt frustrating or irritating then but actually it was a lot more than that yeah exactly and we tried to sell this this tape we edited it down to like a promotion video sent it to 25 different tv channels and production companies we didn't get a single response and we're so happy about that today so that no one could like take part of our embarrassing journey.

9:21Yeah, and I'm assuming you still have a copy of that, but you don't necessarily want that public on the internet. Correct. I mean, I think our trailer is on the internet, but the rest is in a hidden safe, yeah. It's interesting because you're, you know, like you're saying, a sort of geeky introvert, but looking for recognition. And actually, like, when was this? You're saying this must have been 15 years ago? 17 years ago, yeah. Wow, long time ago. Yeah, so 17 years ago, either way, however you look at it, you'd have been really early in a growth area because you'd have been the OG creators. But I'm sure you prefer this lifestyle slightly more.

9:58Yeah, absolutely. And to be honest, I think I had zero talent in that area. I'm so uninteresting to watch and look at. So my career would be a disaster in that area. You mentioned Sebastian's off doing his telesales and trying to get, you know, finish his master's. What about yourself? What were you doing? So me, I think I had like part-time jobs as a school teacher, as well as a bartender. Meanwhile, trying to make my grades become better so I can get into the same school as Sebastian, the Stockholm School of Economics. So I didn't have the same excellent grades as he had from his high school years.

10:34Too much time focused on maybe studying medicine. Yeah, exactly. Okay, so how did it start? Like, what happened? I understand where the problem comes from. You're looking at these e-commerce companies. You're told no one's interested. You're doing your own version of trying to make ends meet and upskill your education so you can do more with your life. Sebastian's already there. What next? I started in the same business school than Sebastian. We're all 23 years old and he kept on talking about this business idea and we decided to pursue it. I mean, what do you do? We have this big idea. We have no knowledge whatsoever how to program a system.

11:11basically don't have any experience from fintech or banking. And I mean, my experience was only from Burger King and cleaning airplanes. So it was like a deep start and we didn't have any money whatsoever. So we tried to figure out that, okay, perhaps we should at least start with the money. This is 2004. The terminology of business angels really didn't exist. So we just like opened up the Swedish business newspaper and tried to call wealthy people and tried to get a coffee so that we could pitch it. And 20, maybe 30 meetings in, still no success. But then the Stockholm School of Economics organized like a business mingle for their incubator that we were able to enter.

11:52And in that mingle was a lady called Jane Valrud that decided that, hey, I want to invest. She invested$60 ,000 for 10 % of the company. And she also had this group of developers that she worked with before. So we took in five of them for 37 % of the company. So basically, before we even started, we only, quotation mark, had 53 % of the company left, which we realized like, hey, we don't have any experience. If we're going to pursue this big idea, we need to be generous with the shares. So two lessons in that I find absolutely staggering. One is how important it actually is to, when you have no experience, there's almost like a beauty in ignorance, right?

12:33Because it's a hard one. You gave away too much of the company, 100%, everyone will tell you that you're an idiot. But a company went on to be super successful and you don't have a Klarna without that moment. And a lot of people with higher ego and more experience would have just turned it all down. Like 100 % of nothing is still nothing. The other part, obviously, is surely that goes down as top 10 best angel investments of all time. Like she must be literally in a class of her own. No, absolutely. And the story is actually that we asked for$40 ,000. dollars and just when we're supposed to to sign she said that hey i think you guys need 20 000 more so she just handed over like 50 more of the initial investment so she saw that as well and she decided to not be like a greedy i mean the opposite of that and she went on i think to fund and or invest and start two other unicorns it's been tremendously successful the by far most successful business angel i think in sweden that is incredible okay so we're going to follow an do an episode with her and just to understand what the hell where her killer instinct comes from so we can learn how to invest better so you've given up 47 of the company um for basically 60 000 and some developers correct right so at this point like what are you actually thinking about this as the three of you this one we realized that hey this is actually for real i mean first we tried to still do some exams and so on on the side but we realized quickly that if someone left the room and went out to study, it was so demotivating.

14:04So we decided that, hey, let's now focus. And I think with the contract with Jane and the developers, it was a two-year contract to give it all. And so we did. We started to work with the developers to design the system. I mean, we had zero experience with e-commerce or our customers. So we were lucky to have a friend that actually had an e-commerce site, Jarno, that had a site called Nelly. and so we developed it together with him as the first customer and that's an advice I would try to give everyone that if you can have and develop your service and technology together with a customer that's by far the best thing because we realized that, I mean, we built something then we showed it to him and he's like, yeah, but I need to have like functionality to do returns.

14:44Oh, is it returns in e-commerce? Oh, okay. Then we had to go back and we had to develop that functionality as well until we actually were able to launch with him five months later. And meanwhile, we did a lot of telesales. And we realized quite early on that this is all about mathematics. If we do 100 calls, that will generate 10 meetings. And out of those 10 meetings, we get one contract to simplify. So if we just double the output of the telesales to 200 calls per day, I mean, we will double our sales. And this was still at the time where you can actually reach people over the phone. I know it's much, much harder today, of course, and especially in the UK.

15:19So we just went on and realized that the more to-dos we're able to do per day, the more speed we get. And it's all about to maximize that. So I think we worked the first two years. We had five days off in total, including Christmas, and worked on average around 80 hours per week, just to compensate of our inexperience and not knowing what the hell we were doing. Because what happened in Sweden back then is that when we started, at least to me, We wanted to be as big as Price Runner, which was the lightning star in Sweden. They were valued to$10 million because we had a quite severe dot-com crash in Sweden.

15:59And they were the ones that actually were able to survive and able to sell. But then what happened was that in 2005, a year after we started, was that Niklas Sendström sold his Skype to Microsoft for$2 billion. So overnight, we realized that, wow, you can actually build a unicorn out of the tiny city of Stockholm. I mean, if he can, we can do it and so on. And I think this is one of the or maybe the number one reason why we see so many unicorns coming out of Sweden. I think we're second in the world just next to Silicon Valley because we got that role model so early on. And that was really intriguing and raised ambition level by all of us.

16:38Yeah, you cannot be what you cannot see. Exactly. I think in some places, like you're specifically saying, can actually be the spark of one person showing they can do it against the odds, which really turns the tide for everyone else and just inspires you to say, if him, why not us? No, absolutely. I mean, in Sweden, when we got Bjorn Borg, one of the best tennis players in the world, 20 years later, we had like a next generation of great tennis players as well. So the power of role models is gigantic, I think. we've started us talking about Klarna but actually I guess we haven't really defined like what was Klarna like what was the vision for it then and how consistent did that stay for the entire life cycle of the company right we started with like an buy now pay later product so you buy something online you enter your personal details and you press buy we do a risk assessment and then you can ship the product as an e-commerce player and you get a guarantee payment so you don't take any risk in that transaction.

17:35And then we make sure to collect the money post-delivery. And then that delivered into multiple payment options. We also added an installment product so you can buy now and then you pay it in different parts in one year time or two years time. It was really good because Sweden is a very tiny market so we quite quickly ran out of phone calls to be made so we were able to expand to new markets. And it went actually quite good And we were able to be profitable, I think, just 12 months into running Klarna. And this then enabled us to then when we still were able to raise capital because of the balance sheet, since we lend out a lot of money.

18:13We were actually able to force the investors coming in to offer us founders stock options. So we were always able to defend this 53 % of the company and still be able to be in control. And I think it was just around like 10 years into when we had to give up that majority. to. There is an understanding, almost a de facto expectation for startups that raise money, you're always going to be diluted. And I can imagine in your position, where you've started at such a disadvantage, the number one pushback you'd have had from VC funding at the beginning would have been something along the lines of, yeah, but you're not going to be able to survive X many dilution rounds.

18:51So how big can this get because you're going to become demotivated, which would obviously provide the perfect pushback of, well, then just don't dilute us. So is that kind of how it went? Or can you give us an insider tip on how, in the right position, how can you negotiate to get more of what's fair? No, I guess, I mean, we were very lucky with the timing of Klarna. So we were right when the e-commerce took off. So even though we didn't do a thing, we'll still be growing by 50 % per year. And it's not that many companies that are in that fortunate position. And I guess that was like one of the reasons why we were able to dictate the terms.

19:23So when Sequoia Capital, for example, went in with our, I think it was Series A, we said that either we pick Index or Bollerton or someone or we go with you guys but this is what you have to offer us and they were able to buy off some secondaries and still make their investment make sense and I think the Warrens had like a strike price of 5x so if we were able to five times the company it was a win for them, it was a win for us and a win for everyone. Yeah that's really good so actually getting into the nitty gritty of what fare and success looks like. How did it feel to become profitable? What did you do?

19:59I mean, I had that dream in life, right, since my fake ideas that if I just become financially independent, I will reach nirvana and be the most happiest guy alive. And in 2011, seven years in, we did a round with DST Global and General Atlantic. And in that agreement, we were able to sell off some shares. I went from being in-depth into having 10 million dollars on my bank account so from one day to the next I had all of that money and I had a conference booked in San Francisco it was a Crunchy Awards by Tech Crunch it was very short noticed but I decided to stop by in Las Vegas on my way to the conference Red or Black by the way how did you make 20 million Red or Black?

20:41Yeah exactly I actually love play poker so that was one of the motivations to go there I'm even though I like it I'm not that particularly good at playing though. I went there by myself and you know for the first time I was able to go by business class you know you go to the left instead of to the right you get a glass of champagne instead of being yelled at and came to Las Vegas checked into this big panorama suite at the Encore watching out to all the different casinos being on the top floor it was like wow now I'm truly living the dream right. Went out to eat the expensive seafood that I don't really like ordered wine that I couldn't pronounce or didn't even taste a difference of, but who cares?

21:22Went out to shop like crazy, all Gucci, Prada and whatever. Everything that is like the sign of a successful person. And then coming back to the hotel room, I started to get this like really bad feeling in my stomach. And then up in my hotel room, I actually kind of started to cry and just had this feeling of, wow, is this what a successful happy life is? And I also watched on these Gucci Prada bags and it was almost like they had a message to me, like, you're so pathetic. How could you ever believe that this myth of consumption could buy you happiness? Oh, I thought it was just because you hadn't brought the spring-summer collection.

22:01No, and that was it, right? If it was a spring collection, it would be a totally different game. You weren't stylish enough. That is, I mean, you know, there are people that go on podcasts and definitely say that's why they went into the hotel room and cried. Glad that wasn't your story. Yeah, exactly. So maybe, yeah, I should redo it, I guess. No, so it was like quite clear that, I mean, and all smart persons know this, that it's a very strong correlation with money and happiness up to a certain point, about$5 ,000, some research shows. And then it's just a diminishing return curve. So for every each dollar, it's like, it makes less and less sense.

22:33And I mean, it was not feeling too sorry about myself. I mean, I was still super fortunate to have this financial freedom, right? To me then to chase like the next dollar valuation sort of stopped making sense. And during this time of running Klarna for these seven years, I lost contact with a lot of friends. My girlfriend broke up with me because I worked too much as well as becoming rich niveau, if that's a word in English. Translate it for us. Yeah, niveau rich or rich niveau when you become like. Oh, like nouveau riche, nouveau riche. there you have it yeah yeah yeah i mean i had this classical sports car big big apartment up in stockholm and so on so all of these classical symbols and in vegas i replaced my fake rolex with a real one and so on and like but still i mean nothing nothing changed nothing changed was so apparent that all of these happy faces on these commercials is just just a myth and this also made me reflect a little bit i mean i went into retreats and therapy and started to try to find out what does really make sense here in life and so on.

23:38And basically all happiness research pointed in the same direction. And that was like a happy life is a meaningful life. And when I started to reflect on Klarna that I was part of creating, the business model and everything, it's like, wow, super good that we make shopping online more smooth. But at the same time, we enable people to shop without having money, essentially perhaps even increasing consumption in society. And this given that we need four planets today to sustain the consumption of an average Swede and I'm sure an average citizen in the UK as well. How dare you? Yeah, sorry for that.

24:14And it's like, okay, what's my responsibility here? And at this point of time as well, Klana had much higher consumer fees, higher interest. Later on, Sebastian and the team actually slashed that and are now probably the most fair consumer finance company maybe in the world. But back then it was like not a great product for the consumers. And we started to be criticized as well in Swedish media. So it's like, okay, now I'm seen here. I get like external validation, but it's kind of negative external validation. So it's the inverse of that. And this led me eventually to actually quit Klarna after 11 years, reaching about 1 ,500 employees, valuation at$2.25 billion.

24:56But I was like, ah, this is not what keeps me meaning in life. How was that conversation with your co-founders? Like, were you able to sort of, were you able to have that deep conversation with them? No good question. So Victor had already left like five years earlier. So it was only me and Sebastian left. And I remember me playing charades with my girlfriend, that different scenarios of how Sebastian would take this. But he actually took it really, really well. He completely understood. And we sort of agreed that we just have different timelines of, I want to change Klarna much quicker. And we already have started doing that.

25:31And Sebastian wanted to make sure that we were able to deliver in the start off in the US. And then later on, transform the company into being a fair consumer lender company. And as well as I had this realization as well that being like so dependent on VC capital and all of this pressure, when I instead can just go off and do my own thing. That was just too tempting to not pursue. When I looked around and I saw my other fellow unicorn companies in Sweden and abroad, it was like, I don't know, if you take, for example, the gaming companies in Sweden, the ones behind Candy Crush Saga and so on, it's like, okay, they really create a fun experience for the one playing them.

26:14But is this really good for the planet? Or is it just catching their attention so that they are no longer able to digest complex information. Is this good for the world or not? And I watched like looked across the Pacific, the Atlantic Ocean is all of these like Facebooks and Instagram is like, okay, seems like they connect friends, but at the same time, they have these negative externalities of polarizing society. And given that all of these companies in the world, they are like, obligated to maximize shareholder value. So you have this like narrow minded focus of solving a specific issue that makes sense to profit maximize, but without caring whatsoever if you hurt the planet or people doing so.

26:57And if you extrapolate that curve and realizing that the next 30 years we will use as much material and energy as we have done the previous 10 ,000 years, you realize, hey, can we play this game forever? Or do we need to reevaluate what really makes sense here? And can we like rethink of what we celebrate here only because a company reaches a specific valuation? Is that worth celebrating or is that maybe taking us in the wrong direction? And that's why I decided to once again to quit to instead start this foundation called Norskian, in which we want to put the spotlight and capital on real entrepreneurs.

27:32So entrepreneurs that are solving real societal and planetarian issues with their business model. And as a shareholder, did you decide to get completely out of Klarna or did you get to keep some shares in? How did that work for you? No, so I immediately sold off about half of my shares. And then eventually I'd be gradually selling off and now I own less than 1%. Right, okay. So I'm almost completely off. It sounds like you've done a lot of work, personal work. Are you able to separate yourself from Klarna properly now? So in the beginning, when I left my operational role as deputy CEO, I was still like so dependent emotionally.