Lack of Lucrative Stock Options Causes Exits at Swedish Startup

(Bloomberg) -- A lack of lucrative stock options at Klarna AB, one of Europe’s few technology unicorns, is causing a raft of senior exits, highlighting the tech industry’s growing dismay with Swedish tax rules.

The Stockholm-based payments company has lost at least 15 senior staff in the past year. Most recently Brian Billingsley, Klarna’s head of North America, left the company last month.

Four senior Klarna executives who have left the company in the past year contacted for this story all said that the departures were not indicative of management turmoil or strategic failings at the Swedish firm. Instead, they noted that Swedish tax laws make it difficult for Klarna to dole out the lavish stock options that typically make executives loath to leave fast-growing technology companies before they go public or are acquired.

The company was also struggling to hold on to seasoned executives because of limited room for internal promotion, the former executives said.

News of the departures was first reported by the Swedish news site Breakit. Klarna spokeswoman Aoife Houlihan confirmed the departures in an email.

Tax Protests

Tech firms in Sweden are chafing against government rules around taxes. Under current law, stock options are taxed as income from employment, at a rate as high as 67 percent. In the U.K., by contrast, a range of options to decrease capital gains taxes are easily available.

In May last year, staff from a range of Swedish startups firms protested against the rules. In an open letter, Sweden’s flagship tech firm Spotify Ltd. warned that the current tax rules “make it impossible with stock options in Sweden.”

There are ways to avoid these consequences, Oskar Belani, a lawyer at the Swedish law firm Synch said, but they involve the employees purchasing the options at fair market value with their own income. Getting up this kind of options program requires expensive legal and tax advice as well as financial expertise to value the options, he said.

Klarna has raised $332 million in venture capital from investors that include Moscow-based investment firm DST Global and U.S. venture capital firms General Atlantic and Sequoia Capital. It was valued at $2.25 billion in 2015 when a group of insiders sold shares privately. That makes it one of Europe’s tech unicorns, or private companies valued at more than $1 billion.

The company made a profit of 169.9 million Swedish krona ($18 million) on revenue of 2.78 billion krona ($307 million) in 2015, the last year for which the company’s annual results are available.

Senior Exits

Alongside Billingsley’s exit, Klarna’s chief financial officer, its top communications executive and several top European regional executives all left over the past year. 

Houlihan said the departures had included employees of "varying degrees of seniority" and that its "employee turnover is typical" for the industry. She declined to provide a turnover figure. She said Billingsley’s departure came as Klarna restructures its North American operations for "a new phase of expansion," moving its commercial and sales headquarters to New York City from Columbus, Ohio.

Billingsley did not respond to requests for comment.

Klarna said that in the U.S. --flagged as a key growth market for the company-- its administrative offices will remain in Columbus, including its legal and customer service teams, while its sales and marketing operations will shift to New York.

In the U.S., the Swedish company is facing competition from entrenched online checkout and payment providers, as well as a slew of smaller rivals. Its biggest competitors are Stripe Inc., Amazon Payments, Google Checkouts, and PayPal Holdings Inc., which has launched similar one-button checkout and consumer credit options.

Klarna entered the U.S. market in September 2015, quickly signing up Overstock.com Inc., Shoes.com Inc. and Shopify Inc. as anchor customers. The company said 2.5 million Americans had used its checkout service. It is now launching a consumer financing product in the U.S. that will allow customers to pay for items upon delivery, instead of at the time of purchase, or set up a plan to pay for an item in installments.

To contact the reporter on this story: Jeremy Kahn in London at jkahn21@bloomberg.net.

To contact the editors responsible for this story: Giles Turner at gturner35@bloomberg.net, Jillian Ward