Klarna CEO Sebastian Siemiatkowski on the IPO, Loving Walmart, and Embracing AI

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1:00Sebastian Siemiatkowski:That's how I feel when I go to San Francisco. I'm the Swedish-speaking kid from the countryside. Hello, hello. Welcome to Termsheet. I'm Allie Garfinkel, senior writer here at Fortune. And every week on the Termsheet podcast, we go over the latest news and insights in venture capital, private equity, and startups. Here's where you can get a sneak peek behind the curtain of VC in the finance world. And every week, we catch up with some of the most exciting figures in the private markets.

1:30Today we're talking to a very exciting person in the private markets who's about to jump ship to the public markets. This week, the big news is Klarna. It's funny, people have been talking about Klarna going public for the entire time I've been a tech journalist. And by the time you see this, by the time you watch this, it will finally be the day. Klarna will be a public company and the company's co-founder, Sebastian Simiakowski, will have rung the bell on the New York Stock Exchange. Now, there's a lot we don't know as we're sitting recording this. We don't know pricing. We don't know how that first day is going to perform.

2:02But what we do know is that this is extremely anomalous for a company to be co-founded by one person, for that person to stay the CEO and then eventually ring that bell. I had an investor once tell me that the odds of that were 0.0001%. And that's why I was really excited to talk to Sebastian, to really level set, check in with how he was feeling, get a sense of what the journey's been like, what the roadshow's been like, and where he sees this all going, not only in terms of AI, but in terms of Klarna's future. Let's jump right in. Sebastian, welcome to Termsheet.

2:35Sebastian Siemiatkowski:Thank you. It's great to be here. It's great to have you here. You know, there's something going on right now, I would say, or something's about to happen. We're sitting here with you a few days before the IPO. It's a Friday. What's going through your mind right now? What has this process been like? Take us inside the days leading up to a day you've been working towards for two decades. Right. Well, there are a few things. I think first and foremost, I think the best part actually of the roadshow was when we checked in into a Manhattan office of one of our investors. and the guy in the reception checking our IDs is like, oh, you're from Klauna.

3:11Sebastian Siemiatkowski:And we're like, oh, yeah, you know it. And he's like, I love it. I use it all the time. And then we say, oh, okay, so tell us what we could do better. And he's like, well, I just want to get the card. I'm on the waiting list. So I think that was the epiphany. That was the best moment on the whole roadshow. Even though we obviously had a lot of fun with you investors, don't worry. We enjoy those conversations as well. But that was my golden moment. I think it is interesting because people talk about, you know, this kind of thing of, you know, ringing the bell and IPO-ing and working towards this.

3:41Sebastian Siemiatkowski:And I, but personally, I'll tell you, Ali, that there's somebody, like, I look forward to it. I'm sure it's a cool event. But there are other events that, to me, on an emotional level, I'll tell you, one of my, like, epiphanies on an emotional level, it's actually quite recent, when I was invited to go to Bentonville, Arkansas, to try to finalize the deal with Walmart. and I'm in Bentonville and you have to remember I'm a kid from Sweden, the small country of Sweden from a small place called Uppsala and I read the book of Ingvar Kamprad and Sam Walton and these books when I was a kid and I dreamt about this and I'm in Bentonville and I check on Google Maps like what's related to Walmart is there and the museum was refurbishing so I couldn't go there so the only other place I could go was his grave the graveyard in Bentonville where Sam is buried and and you know people are superstitious so they put money on his grave so there's tons of money on his grave because people think they're going to get rich if they put money on his grave but standing there after 20 years and thinking like wow i'm actually on the cusp of signing and working with the biggest retailer in the world who i have admired sam altman and his accomplishments my whole life i gotta tell you like i'm sorry but it's not going to beat ringing the bell that that to me was more emotional.

4:58Sebastian Siemiatkowski:So I'm going to look for always going to be amazing ringing the bell. But that is a much more, that's much more me. You as a kid idolized Sam Walton as a kid in Sweden. How did that happen? Well, I think that the interesting thing, right, is that when you're an immigrant kid like me, my parents fled Poland, communist country where they didn't see an economical future. And then you end up having these academics for parents who, you know, have all the intellectual capacity in the world, but find it difficult to integrate into a new society like Sweden. And especially Sweden back then, you really had to know Swedish, you had to speak Swedish properly, the difficult language to learn.

5:41Sebastian Siemiatkowski:And my father ended up, instead of becoming a doctor, as he dreamt of, he ended up driving a cab or even being unemployed. My mom was an early retiree. And then they ended up quarrying and fighting a lot. And they divorced when I was eight got to get together and then divorced again and they were continuing doing that for a while and you end up coming to the conclusion that money would have solved it all which you unfortunately later in life yes it's not that easy money doesn't solve it all but but at that point of time I think was one of my conclusions was and then for whatever and that just in combination with the excitement like you know Sam Waltman he used to fly a plane because he had to go between you can you imagine that like growing his company in the 60s and 70s flying a plane and you know and he would come to new york and they would all scoff him away because he was the kid from the countryside and you know like oh yeah yeah the small guys building some you know some stores out of nowhere like we're building them in new york and then he just like he just wins and like that's how i feel when i go to san francisco i'm the you know i'm the swedish speaking kid from the countryside and then like yeah maybe please can anyone take a meeting with me because I'm here this weekend like you know so I kind of I can recognize myself in those stories a lot and and they excite me obviously well I was going to say do you believe there is a part of us is who we that is always who we once were like is there a part of you that as you go through this roadshow still feels like that kid yeah for sure yeah for sure I sometimes go into meetings and I'm like why are all the grown-ups here what am I doing in this room like I go to parties and wonder why i'm not sitting at the kids table still like why am i not supposed to sit am i really you've been asked the question when will klarna go public for years now why was now the time um it's a good question i think that the um me and michael moritz has been on my board and chairman for such a long time and it's amazing michael has committed to this company 16 years of his life we I think had a very similar view and that was that Google was kind of the optimal IPO in the sense that they had a proven business model and they had a global coverage but they were still early in the growth of that company when they IPO'd and that was always what I dreamt of gone as IPO being like and I feel like we had to prove to be global needed to be success in the US and success in the US couldn't just be losing a lot of money here but actually making a profit here as well.

8:09Sebastian Siemiatkowski:And those were accomplished the last one or two years. And then that was kind of ticking all the boxes. And I still think Klana has a tremendous amount of growth ahead of itself. So I think it was like that was pretty much it. I mean, me personally, I'm not selling a single share. I've even increased my economical interest recently in Klana. I've borrowed$112 million to do that. So the point is that like, but obviously there's 1 ,500 shareholders. We've had people, we've raised money over the last 20 years. There's going to be some people wanting to see at least part of the stock that they invested in, you know, some liquidity.

8:41Sebastian Siemiatkowski:So I think that's, it's not more complex than that really. One of the things that I really like about covering Klarna is that I actually use it. So I'm going to tell you how I use Klarna. Yes, this is my thing. I actually have used Buy Now, Pay Later on it before, but mostly I use it to buy sneakers outright. Like I use it to feed my sneaker addiction. I like the UX. um buy now pay later has long been associated with Klarna but a significant portion of your revenue is also from other parts of the business um what do you think is most misunderstood about Klarna's business model but that is actually you know Michael asked me like so what's the impression from the roadshow and I thought I couldn't answer him directly but then the day after I stepped on it it was exactly that which is that for the first time I'm meeting investors and the first question is not buy now pay later.

9:32Sebastian Siemiatkowski:The first question is, how are you going to disrupt retail banking? What could this mean for KPMorgan Chase and the others? How is this going to change the industry? They're a question of that type, which makes me super excited because that's always what I wanted to do and that's always what I've set out to do. So I think that is the misconception. The misconception is very much buy now, pay later, credit, young people, these kind of things. and it takes a little bit of time, but I feel like the message is getting through. You know, and to some degree, Bynapolite at first, it's like, it's both a blessing and a curse, right?

10:09Sebastian Siemiatkowski:Like it was a blessing in the sense that it opened the market in the US, people got to know us as a brand, but it's a curse because then you're like talking to somebody doing subscriptions at OpenAI and you're like, hey, why are you not offering Clon as a payment method for subscriptions? And they're like, why would I do Bynapolite later? And we're like, my God, I work with Spotify, I work with Disney Plus. Like there's tons of things you can do with Lana. And then, you know, got the memes and people go like, oh, burritos, burritos on installments, DoorDash, ha ha ha. You know, like, and it's kind of funny, but, you know, at the same point of time, yeah, but it's not about doing burritos on installments.

10:41Sebastian Siemiatkowski:It's because we're a wallet like PayPal and you can pay us for, you know, and so forth. Right. So I think that is obviously to your point that that is the most misconception is this whole buy now, pay later thing. It's a product. It's a feature. It's a great feature, but it's just one of many. Well, and to your point about it being a blessing and a curse, it is, you know, you guys are part of that iconic set of buy now, pay later companies, but also have kind of moved beyond that. I mean, you know, folks are asking you about JPMorgan Chase, for example. Who do you even consider competitors at this point?

11:12Sebastian Siemiatkowski:No, but I think that, you know, look, it's, I think there's any disruption, right? Like I look, obviously I look at what Max is doing with Affirm. You Max have a fun, long history. I'll go back. But I also look a lot at what Nick is doing with Revolut in Europe, which is less spoken about. That's actually one of my main messages to the investors here. It's been like, guys, you're asking us about a firm. In two years, the only thing you're going to ask us about is Revolut. That's what you're going to be asking about. New Bank, David, you know what they're doing. But to be fair, credit cards is a$1.2 trillion industry.

11:44Sebastian Siemiatkowski:Retail banking is a huge industry with massive excess profits, with very low customer mobility because switching is so hard and we're not that engaged. And like, it's the incumbents who are the opportunity for us, right? And obviously I watch the others. I watch Affirm. I watch Revolut. I watch Squareblock, what they're doing. But we are still such a small proportion of the total retail banking industry. So the true competitors are going to be the incumbents in going after their market share. Well, I was going to say, and what's the plan? Once you're public, I imagine being a public company is part of that process.

12:23What does that process look like?

12:27Sebastian Siemiatkowski:No, but it's exactly that. I mean, I think that the difference, if you look at a firm, they're like, I can't remember whether about, I think, a little bit less than 30 million users or something. Revolut is kind of slightly more. Plana is 111 million users. So when it comes to number of users, we're far beyond any of those. It's only basically PayPal, maybe, on a comparable level. Even I think we're at the same size as Amex when it comes to number of users, to be honest. But obviously, those users may use us occasionally, once per month or something. On average, they use us once per month. So the big thing now is to show more people that we offer more services and that we have more.

13:08Sebastian Siemiatkowski:So like the card, for example, we're very excited about that. In the last few weeks, we've signed 700 ,000 people in the U.S. up for the new card. We have 5 million people on the waiting list. and we're like super excited about getting that card into the hands of more of our users. So because if we, even if half of our 111 million ends up being a card holder, then we would be one of the largest issuers of cards in the world, right? So like there's a huge potential, but our focus has really been on growing the user base. And now more and more of it's going to be about how we present to our customers that we can do great things for them beyond just making a purchase online.

13:45Sort of to this end, what do you see as the future of financial services?

13:49Sebastian Siemiatkowski:That's actually very interesting because when we launched this company, it was all like buy an IP later, buy this. And it actually wasn't even about credit. People don't understand that. But people who have debit, you know, this is my blockbuster cap. If I buy this online, which I didn't because I went all the way to Bend Oregon to buy it. So but if I would have bought it online, then I don't like the concept if I'm on debit to send money and then maybe it will show up. right so the benefit of credit is i paid once i've received it and i see it's exactly the cap that i wanted right so so that was the original idea and then in 2010 we were like no let's do checkout let's do payments processing for retailers and then we're just going to compete with this irrelevant small companies one was these irish brothers they started this thing called stripe don't worry about it it's not that good and then there's these dutch guys you know and i went down to peter the ceo of adyen and i was like peter sell your company to me i'm going to run you over I'm much bigger and greater on, you know, and he just laughed me off.

14:45Sebastian Siemiatkowski:Took me a few years to mend that relationship back. But I love Peter now. We're good friends. So, but in 15, we had to, you know, in 15, Adyen signed Spotify and we're like, okay, you know, Stripe and Adyen are killing it. Let's do something else. We had to pivot. And when we did that in 15, we said, what's the future, to answer your question, what's the future of retail, banking, future financial services? Well, at some point in time, you're going to wake up in the morning and your digital financial assistant will be like hey i've analyzed your mortgage i realized i could save you 50 bucks a month and the only thing you need to do is say yes i'll do all the paperwork for you and i'll switch switch for you right and you'll be like do you care that you had barquist or jp borgen chase like do you care where your mortgage is from you're just like give me the 50 bucks i want to use it for something else so the conclusion was banking is going to become two things very efficient balance sheets and a lot of the incumbents will simply become very efficient balance sheets or you're going to be a digital financial assistant you're going to be the one that truly takes your customers best interest at heart and save them time save them money and make them feel in control of their finances which was kind of the purpose of being a bank if we go back to like the traditional idea of what a bank was supposed to be but then you know they got the fancy pants the offices and their beautiful suits and they started being more obsessed about making money for themselves than making money for us as customers, right?

16:11Sebastian Siemiatkowski:And then we suddenly end up paying tons of things for insurance and for this and that. And you're like, how did this all go about? So I think it's going to come back to where it was supposed to be. Value for customer. And of course, even though the mortgage example is one that's very really easy for people to comprehend, the truth is you don't think about your, you're taking a mortgage decision once per decade, but your contact lenses or your phone subscription or all that things those are everyday purchases where a company or an assistant that's truly acting in your best interest can make a huge difference on your stress and your you know and your ability to you know focus on the right things and stuff and i think that's the future retail banking we want to be we want to be that assistant of our customers right and it's a little bit like self-driving cars you know i've always felt this going to happen.

17:04Sebastian Siemiatkowski:I always argue that my daughter is now 12. He's not going to get a driver's license. But in 17, it sounded like it's going to happen tomorrow. But now I'm in San Francisco and I do the Waymo and it's amazing. It's amazing. It's finally happened, right? It just took a little - You're genuinely excited about that Waymo. I love it. I love it. You're here for the Waymo. This gets us to AI because eventually everything gets us to AI. You once said to me that you went to Sam Altman and said, I want Klarna to be Open AI's favorite guinea pig. Yep. How's that going? No, I hope we are their favorite guinea pig.

17:40Sebastian Siemiatkowski:But I think also that like, you know, we are super, you know, bullish on the relationship with OpenAI and we hope to be able to help them in their pursuit of doing angelic shopping and all these things. I think there's tremendous opportunity to cooperate on those topics. But also we think that like, we want to be, we want to really, I mean, because yeah, there's been, it's fun obviously people are interested because we're like oh we we dropped salesforce so we dropped workday we dropped now atlash and you know we're dropping atlash and gyra and all this stuff and people are very keen on understanding like how are you doing that are we using ai with that clona um but the truth is like all of that is just like i mean i don't know we i think we saved like two million dollars in license cost of salesforce like that's not going to move our pay now like it's not going to make us more successful it's a nice saving but it's not like it's not going to move the needle for a company of our size.

18:28Sebastian Siemiatkowski:So what's it really about is, you know, as much as we're OpenAI's favorite guinea pigs, we ourselves as employees of Thona are guinea pigs of our own AI services that we're building internally. And the benefit of that is then we want to bring that to our consumers and to our merchants to create a next generation of that digital retail, you know, digital financial assistant that I described earlier. But we have to test it on ourselves first and make sure that it is as great and it's really helping us and it's making us, you know, allow us to save time and money and be more in control of our finances.

19:01Sebastian Siemiatkowski:So I think that's the key. And now of the stuff we built internally, I don't know when it's going to get launched, if it's weeks or months, but it looks really, really cool when I try it myself. It's freaking amazing. It's mixing AI with deterministic code. It's doing some really, really nice things. It's providing a next generation of a banking and shopping experience. So I'm really, really excited about it and to bring that to market because that ultimately has to be the goal, right? And if you really want to deliver on that vision, you have to use AI for that. And so it's very, very promising.

19:31Sebastian Siemiatkowski:I'm very excited about it. I also read that you used an AI avatar last quarter. Yeah. 2 % earnings. Why did you do that? Because after doing a lot of investor calls, you feel like this is not that different than the previous ones. It'd be nice if some avatar could step in and do it for me. Save a little bit of time. But it's also just because, you know, I think people end up like debating and talking so much and like stop talking. People try things, learn, experiment, be curious. I think this is the maybe largest technical shift we're going to go through in our lives. And if you're just sitting there and you're talking about it, you're not learning anything.

20:14Sebastian Siemiatkowski:I have since May, I've been on cursor myself coding every day just because I want to learn. I want to understand this thing at the core, right? I want to really understand it. And I think trying things like this is extremely helpful to learn how can this technology be applied for the benefit of our customers. So I think that's really the main reason, to be honest. You mentioned vibe coding. I mean, I actually heard you've been doing quite a bit of vibe coding lately. How much is a lot of vibe coding? Oh, you should ask my wife because she's been complaining that like every evening after dinner, I'm like, Hey, Nina, I just want to go away and I just need to punch in some commands to my cursor.

20:56Sebastian Siemiatkowski:So I think, yeah, if you ask her too much, a lot, a lot. What are you vibe coding and why are you spending so much time on it? Well, as I tweeted, the truth is I've been vibe coding for 20 years because I've been going into a room. I still regret I never became an engineer. I should have learned to code properly. I did some HTML code, whatever, but it's not the real thing. I should have done that. And so I've been vibe coding as a CEO for 20 years. I come into a room and I say, guys, the product people and the engineers like, hey, we should build something. It should work like this. Our customers want that, et cetera.

21:33Sebastian Siemiatkowski:And they're listening, taking notes, come with some ideas. Then they come back a few weeks later. There's like, here's a prototype. And I'm like, no, not like that. I want it to work like this and the copy there. And I want the screen. And then, you know, after many of those iterations, we ship a product, right? And that's vibe coding. Like, I don't read the code. I don't know what the actual code and how they actually implemented whatever I was talking to them in that meeting is. I just look at the outcome and I'm like, okay, either the product works or it doesn't work, right? Like, or it's good or it's, you know, easy to do or not.

22:03Sebastian Siemiatkowski:And that's vibe coding. The only difference now is I can do it directly with a computer. and when I suggest to a computer it should work like this, you know, 10 minutes later, it's funny because the computer always says, this will take us six weeks to implement. And I'm like, yeah, yeah, whatever. And half an hour later, it's like, here it is. And then you're like, no, it's not. You're just saying that. Let me test it. Doesn't work. Okay, go and fix it. Go and fix it. But two hours later, it actually works. And it's just, you know, because it's also dangerous when, I think this is very critical.

22:35Sebastian Siemiatkowski:I think a lot of founders missed this. When I was sitting in the room myself in a startup, I wasn't coding, but I was so close to the engineers and the product people that every bad idea I had, they would either show me why it didn't work or we would try it and we would realize it didn't work. And there would be a more, and because the relationships were closer and because everyone knew each other and because I wasn't the big, great CEO and I was just like a kid, they're same age as them in the same room, they wouldn't be afraid of telling me that that was a horrible idea. Now, the difference you get when you're a CEO is you're sitting there, you see some prototypes and stuff, and you're like, I'm the smartest guy in the world.

23:14Sebastian Siemiatkowski:I'm going to tell you how to build this. But half of the ideas that you're telling them are crap. They don't work in practice. And then you're just getting people working on the wrong stuff. Obviously, I wish I could have bigger ears and a smaller mouth and listen more and stuff. Maybe I could mend some of this. And then people get afraid. like, oh, it's the big CEO in the room. I'm not going to tell him how stupid that what he just said is. So there's a lot of things that happen in that process as you grow up and the company becomes larger. And the benefit I have now with AI is I can take one of my ideas and I can say, let me go and prototype it.

23:48Sebastian Siemiatkowski:And then I can come back and I can say, guys, I've tested my idea. I know it actually worked. Let me show you how I implemented it. Let me show you how the code looks like. And then that just makes me, I think, a better leader. It makes me more realistic. It makes me also learn and understand what I'm doing is right. And it doesn't mean necessarily you put it in production because that's a different thing. You want to put it in production. It needs to serve hundreds of millions of people at the same point. It's a different thing. But prototyping and showing and visualizing an idea rather than just describing it is very powerful.

24:18Sebastian Siemiatkowski:It's very, very powerful. Well, and it sounds like it's also allowed you to sort of filter out the ideas that you know aren't going to necessarily work. Because you're like, oh, I tried this. I actually am not going to send somebody to go do this. I mean, do you think it's only a matter of time before something that you or someone else at Klarna has vibe coded becomes a product? Yeah, no, I think it is a matter of time. Like I actually recorded a recording for everyone working at Klarna. And it was basically this. I don't have my phone here. I got a text message from Klarna. And the text message was something like, you have missed your open AI payment for$250.

24:58Sebastian Siemiatkowski:It's expensive. of thing uh 250 dollars and uh pay now and i was like come on that's not how we should talk to our customers like this is a very bad text message so historically what i would have done it would have gone to my management team i would have said like hey guys can you know somebody needs to fix this this is horrible and then they would have gone and tried to find a team that has the code and then get a new copy for the text message get it approved by the marketing department blah blah and now what i did i opened cursor i went to our internal knowledge hub i said hey tell me which repo, which repository is the text message in.

25:30Sebastian Siemiatkowski:It showed me, oh, it's in this repository. I downloaded the repository. I found the code where that exact text message was coded. And I said, hey, let's, can you chat to be, sorry, this was Claude. Can you, Claude, write me a better message using the brand guidelines that we have? And I was like, yeah, I did. Here's the new copy. Like, don't add additional features because the engineers will yell at me that I'm trying to make it too complex. Just fix the copy. And then commit it. so they can code review it and put it in production. Took me five minutes. Five minutes. And I shared this with the organization because I said, look, guys, you all got to learn to do this.

26:06Sebastian Siemiatkowski:Whether you're business or engineers, I don't care. We're all going to learn how to do this because it's empowering. It's allowing all of you to do that. It doesn't mean that we ship that into production. Engineers will do a code review. They will check that it's right, that it's according to what we're trying to do. But imagine how it can accelerate us. And a lot of people in Clonass, Slack me afterwards to send a message on Slack. They're like, we'd love to do this. The only problem is we need to go and ask marketing for approval when we change the copy. And we need to find out who can write the copy.