Did Klarna’s shareholders know what they were doing?

October 24, 2024
by Björn Jeffery
SvD Näringsliv





Did Klarna’s shareholders realise they were voting away their own influence?

Published in Svenska Dagbladet, 2024-10-24. Translated from Swedish.

The extraordinary general meeting at Klarna is over and the major shareholders got what they wanted. Sebastian Siemiatkowski strengthens his grip ahead of the listing. Why did the other shareholders let it happen?

“Minor administrative amendments to the articles of association” is not an agenda item that normally excites shareholders. But in Klarna’s case it concealed something that should have made the company’s shareholders furious — assuming they understood what it meant. There is much to suggest that many of them did not.

SvD has reported on the power struggle that preceded the extraordinary general meeting held in London on Thursday. Among the proposals passed was the ability for the board to remove members found to have breached their duties, and to appoint new members. Klarna — which now has a British parent company — is permitted to do this under British company law. In Sweden it would not have been possible: in a publicly listed Swedish company it is the shareholders, through the general meeting, who appoint at least half of the board members.

Power is now shifting from the general meeting to the board — which strengthens those already represented there, including CEO Sebastian Siemiatkowski and chairman Michael Moritz from venture capital firm Sequoia, while major shareholders such as co-founder Victor Jacobsson will lose out. His board representative, Mikael Walther, was forced to resign as a consequence of Thursday’s meeting.

What is not standard is that shareholders vote to reduce their own influence — at least not if they understand that is what is happening. According to Klarna itself, the move of the parent company to the United Kingdom was made to prepare the company for a listing, on the grounds that British law is internationally recognised and well understood by larger investors. Given that the listing will most likely happen in the United States rather than the UK, there were probably other options for domicile. But restructuring a company ahead of a listing is in itself neither unusual nor controversial — it is practically standard.

What is not standard is that shareholders vote to reduce their own influence. At least not if they understand that is what is happening. The decision to relocate was made in March this year. A share in the Swedish Klarna could be exchanged for a share in the British Klarna. It sounds simple, and shareholders reasonably did not want to stand in the way of the approaching listing — the prospect of liquidity beckoned. But then there was that matter of company law.

What Klarna voted through at its extraordinary meeting on Thursday was correct and legal under British company law. The equivalent manoeuvre in Sweden would not have been possible. So why did shareholders vote to reduce their own control over the company? Did they understand that the move — indirectly — entailed more than just listing preparation? A simple safeguard would have been to incorporate the same articles of association as in Sweden into the British company — to keep the same rules as before. But that safeguard was absent.

Whether this was a deliberate move or an unforeseen consequence can only be speculated about. The situation is now what it is. Power has been consolidated among existing board members, and a new standard articles of association has been established for Klarna — one that will likely be the framework presented to new investors at the listing going forward. Given the expected destination of the listing — the United States — that is unlikely to cause problems. The American stock market is full of companies with governance structures different from what Swedes are used to. Among the larger tech companies it is more the rule than the exception. The clarity it provides has probably helped several of them. Everyone understands who is driving and who decides. Zuckerberg is boss at Meta, and if you don’t like that, you shouldn’t invest in its shares.

But that reasoning only applies to the prospective new shareholders in Klarna — those who may come in after the listing and going forward. For the existing shareholders who have now lost much of their control and influence to the board, the situation is not so clear. They appear to have voted themselves out. The question is whether they understood that is what was happening.


How our grip on truth could crumble

October 22, 2024
by Björn Jeffery
SvD Näringsliv





Behind AI-generated deepfakes lies an even bigger problem

Published in Svenska Dagbladet, 2024-10-22. Translated from Swedish.

New digital tools have opened the door to mass manipulation that could influence the American presidential election. But behind AI-generated deepfakes lies an even bigger problem.

A girl in an orange life jacket sits in a boat. She looks as though she has been crying for a long time — tired, red-eyed. The water around her is brown and unwelcoming, and it is raining hard. She is holding a puppy. Hurricane Helene has just swept through American states including Florida, Georgia and South Carolina. The rescue operation has been difficult and the destruction enormous. The image of the little girl spreads quickly online as a symbol of the suffering Helene has caused. The girl does not exist. The image is AI-generated. Even an untrained eye can sense that something is not quite right — it looks partly animated, with a shimmer that gives it an unnatural gloss. Yet it quickly becomes a weapon in a political debate about whether society has prioritised the relief effort properly.

Fears that AI-generated images and deepfakes would influence American elections have existed for years. With the dramatically accelerating pace of AI development, those concerns have intensified ahead of this year’s presidential election. There are already plenty of examples. A user called “Think for yourself!” posted the fake image of the girl in the life jacket on X with the comment: “I don’t care if it’s AI, it’s still true!!!” The phenomenon raises an interesting question. Is it AI images influencing public opinion that we should worry about — or is there possibly an even bigger problem: voters deliberately allowing themselves to be influenced by an image they know is fake?

The term “deepfake” was coined on the internet forum Reddit in 2017 — a combination of “deep” from “deep learning,” a type of AI technique, and “fake.” On Reddit, this new technology was used to create videos where pornographic content was reworked to include celebrity faces. That genre of content has a tendency to be quick off the mark in major technology shifts. There is also no shortage of “cheapfakes” — poorly executed deepfakes using crude methods like pasting heads onto other bodies. The intent is the same, but the execution low quality.

In 2023 AI technology made a major breakthrough. Services like Midjourney and Stable Diffusion suddenly gave tech enthusiasts powerful tools to create new kinds of images. In March of that year an image appeared of the Pope wearing an incredibly elegant and fashionable white puffer jacket. It went viral immediately, with the Pope praised for his bold fashion choices. The image was, of course, fake. The creator had to issue an apology after what had seemed like a harmless joke spiralled out of control. In another example, Trump posted a series of images appearing to show Taylor Swift fans — so-called Swifties — rallying behind him politically. Also fake. In a Fox Business interview he distanced himself from the images, but in a telling way: “I know nothing about them other than somebody else generated them. I didn’t generate them.”

Trump didn’t create the images. But he spread them. And through that, uncertainty is created about what is true, what is uncertain, and what is entirely false. In a world of deepfakes, the opposite problem also arises: genuine photographs are assumed to be fake — or can at least be dismissed by a political opponent as exactly that. When presidential candidate Kamala Harris landed at Detroit Metropolitan Airport in early August, a large group of supporters with banners was visible beside the plane, enthusiastically cheering her arrival. Trump was not equally enthusiastic. On his own social media platform Truth Social he accused Harris of having manipulated the images: “Has anyone noticed that Kamala cheated at the airport? There was nobody at the plane, but she ‘AI’d’ it and then it showed a massive crowd, but they didn’t exist!” Given the number of people present, plenty of other images from the same moment existed. The crowd was real. But once the seed of doubt is planted, it becomes an argument one can deploy against almost anything. Does a picture make you look bad? Then it’s fake. Does a picture make your opponent look good? Also fake.

Political actors have always used a range of methods to smear opponents and try to win elections. In 1972 the American newspaper Manchester Union received a letter claiming that senator and presidential hopeful Edmund Muskie had used a derogatory term about a large voter group. The letter later turned out to have been written by an employee of the sitting president, Richard Nixon. It triggered a downward spiral for Muskie, who ultimately did not win the presidential nomination after all. A fake letter — a simple but apparently effective method. Another popular technique is robocalling — automated phone calls. In 2008, thousands of residents in North Carolina received a call in which a voice told them they would receive a voter registration form by post, which they should fill out and send back to ensure they could vote in the upcoming primary. The problem was that by the time the calls were made it was already too late to register, and the calls were going to people who were already registered. Confusion ensued, which may have prevented some from voting at all. The campaign was traced to a group called “Women’s Voices Women Vote,” which had connections to Hillary Clinton’s primary campaign.

What the introduction of deepfakes has done is dramatically lower the threshold — and the cost — for creating fake material. What previously required a professional video production team can now be done in a couple of minutes by anyone. The quality is often quite poor, and a new term has emerged to describe the enormous volume of low-quality AI imagery that has appeared: AI slop. Given the pace of AI development, we are months rather than years away from substantially more realistic images and videos of this kind. The companies behind these tools claim to have policies against such use, but enforcement is practically very difficult. And the damage can already be done by the time the source is identified.

The volume of political deepfakes is now so large that they have been documented in a database administered by researchers affiliated with Purdue and Northwestern universities. At the time of writing it contains over 540 examples.

There are two different perspectives on how the deepfake problem will develop. A pessimist would say it will likely get worse quickly. The quality of these services is improving, and in just the past few months AI tools for both audio and video have nearly exploded in capability. With better tools accessible to far more people, it is hard to believe the problem will resolve itself. Relying on human goodwill and good intentions in this context may be naive.

An optimist can note that despite this proliferation of new tools, the problem is still relatively contained. More fact-checkers than before — both news services and social media platforms — are now examining this kind of material. A fake image spreads fast, but it can also be debunked fast. AI development may even assist with that too. When Trump was shot at a political rally in Pennsylvania, an image spread appearing to show smiling Secret Service agents — as if pleased with the outcome. The image turned out to be false and was quickly verified as such by multiple independent sources. The problem is created fast, but the solution follows shortly after.

Taken together, we have a media landscape that may face a larger problem than individual fake images or video clips. Our shared sense of what is true and what is false risks eroding. The quality of the material does not necessarily determine whether someone believes it — they may simply have decided to trust the source, regardless of what it says. It takes only a drop of doubt before what we have collectively accepted as truth begins to crumble. Should that trend continue it will be a major challenge for society. But it is not strictly a problem that arose with AI and deepfakes. If — like the person who posted the girl in the life jacket on X — you have already decided what is true and false in the world, there are few things that can make you change your mind. Even when you know it is fake.


The paedophile alarm concerns every Roblox parent

October 20, 2024
by Björn Jeffery
SvD Näringsliv





Roblox accused of being a haven for paedophiles

Published in Svenska Dagbladet, 2024-10-20. Translated from Swedish.

The gaming platform has been described as a “nightmare landscape of paedophiles.” At the same time, two thirds of all primary school children in Sweden use it. Should parents be concerned about the accusations from Hindenburg Research?

“Escape to Epstein Island,” “Beat up the pregnant” and “Survive the killer” — these are some examples of games on the Roblox platform. In “Beat up the pregnant,” the objective is to kill pregnant women with knives and frying pans in a car park. The company itself describes its goal as to “connect a billion people with civility and optimism.” As you may notice, something does not quite add up.

Last week, short-selling firm Hindenburg Research published a report on Roblox. The platform allows users to create and publish their own games, which has led to a rather different range of content than games typically contain.

Hindenburg — named after the airship that exploded in New Jersey in 1937 — is, as the name suggests, a firm that profits when companies do badly. They short the shares and then publish reports — with obvious self-interest — that cast target companies in a poor light. When Hindenburg Research went after India’s Adani Group, the market value fell by over 120 billion kronor on the first day. Roblox’s share also took a hit after Hindenburg’s publication, though it has since recovered.

The firm’s criticism centres on two main areas. First, that Roblox is opaque about — and overstates — the number of players on its platform. Second, that it is a “nightmare landscape of paedophiles” where children and young people can encounter both inappropriate content and inappropriate people. Roblox allows children under 13 to play, but treats them differently on the platform — though in many cases children and adults play the same games simultaneously.

User numbers are an almost constant topic of debate for gaming and social media companies. What seems like a straightforward calculation rarely is. In 2016 Facebook had to apologise for having incorrectly reported how many people had watched video on its service — and overestimating video views had also distorted the associated advertising, which is Facebook’s primary revenue stream. In Roblox’s case it is a question of definition, and the company itself dismisses the criticism in a statement, saying its definitions are clear and properly disclosed. From the outside it is hard to judge — but making numbers look slightly more favourable than they are is hardly unique to Roblox on the stock market.

The second issue — around paedophiles and other inappropriate behaviour — is more serious. According to Roblox’s latest quarterly report, around 79.5 million users were active on the platform daily. Keeping track of all those users — particularly with chat functions and the ability to create custom games — is to put it mildly a challenge. Hindenburg’s report provides many examples of how obviously inappropriate content has slipped through the existing safety systems, and cites cases of multiple people arrested after attempting to arrange meetings with children on the platform. Games depicting simulated sexual assaults and similar content are numerous.

That sounds terrible — for parents especially. But provocative use of offensive names and actions is something that occurs throughout the digital world. It is not necessarily desirable, but it does not automatically mean that it is happening in reality, or that it was even intended to. Roblox maintains that it has a robust safety system that catches and blocks a great deal.

In an interview with Yahoo Finance, equity analyst Michael Pachter from Wedbush Securities commented on the report: “I don’t question that anything in the report is wrong […] but I’m not sure it’s relevant.” Pachter’s point is that the number of paedophile cases and similar incidents is very low relative to the number of users. He has a point — mathematically. But rarely has the contrast been so stark between what markets and ordinary people care about. A single paedophile is not much in statistical terms — but you don’t need more than one to cause serious harm.

Hindenburg Research are not noble knights concerned about children’s wellbeing. They are opportunists trying to make money by damaging a company that appears to have insufficient control over its operations. But what they are saying — regardless of their motives — is something that concerns every parent whose child plays Roblox. And there are many of us. Two thirds of all Swedish primary school children do.


The tech elite found an enemy — and found Trump

October 15, 2024
by Björn Jeffery
SvD Näringsliv





Lina Khan made Silicon Valley switch political allegiance

Published in Svenska Dagbladet, 2024-10-15. Translated from Swedish.

As long as the money kept flowing in, venture capitalists didn’t need to care about politics. A young lawyer changed that. Now the liberal tech power centre of Silicon Valley is a pillar of the conservative movement that wants to make Trump president.

The audience cheers. The stage is framed by stone, with an engraved reminder about the importance of education. We are in Royce Hall at UCLA in Los Angeles — just south of Bel-Air. Duke Ellington and George Gershwin have performed here. But we won’t find jazz musicians today. Quite the opposite. Seated in a row of grey sofas and armchairs are four Silicon Valley venture capitalists. Before a full house, the suited men are interviewing guests including Google co-founder Sergey Brin, Tesla CEO Elon Musk, and outspoken Uber founder Travis Kalanick.

This is the All-In Summit, an annual gathering born from the popular tech podcast of the same name. The talk — and the bickering — between David Sacks, Jason Calacanis, David Friedberg and Chamath Palihapitiya has become one of the most popular tech podcasts in the United States, with hundreds of thousands of weekly listeners.

The next guest on stage, however, is no tech bro like the rest of them. But he is indicative of a larger shift that has taken place in Silicon Valley ahead of this election. “Welcome vice-presidential candidate JD Vance to the stage!” In the 2024 election campaign, technology has become politics — and vice versa.

JD Vance is admittedly a former venture capitalist himself, but that is not why he is visiting. The most outspoken of the hosts, David Sacks, is a vocal Republican who has increasingly steered the podcast toward political topics. One segment of the conversation with Vance is subtitled “how to practically approach deportations, and who is coming through the southern border” — not an entirely obvious subject for an event full of tech enthusiasts. This election year the range of topics in Silicon Valley has expanded dramatically. A new kind of political power player is emerging. But why is this happening now?

Silicon Valley’s liberal image is well-known. In the Castro district, a giant rainbow flag has flown for many years — a marker of the city’s openness toward the LGBTQ movement. Silicon Valley as a whole — the area stretching from San Francisco south to San Jose — is in many ways a textbook example of a well-functioning melting pot. About 37 percent of the area’s population are immigrants, and three of the biggest companies in the tech industry — Google, Nvidia and Microsoft — all have immigrants as their top executives. The region is a mix of nationalities and worldviews, though the heavy concentration of engineers means the range of professional backgrounds is fairly narrow.

This has contributed to the image of a liberal tech sector — and one that has not cared much about party politics at all. Silicon Valley has been like California writ large: a reliable Democratic win, every election year. Uncontroversial, and therefore rather uninteresting. But the reality has always been more complex.

A 2017 survey revealed more nuance. Among tech company founders, views were liberal on social issues — abortion, immigration, support for the less well-off — but significantly more conservative on questions of regulation. And especially on labour regulation — trade unions and the like. Looking at the last presidential election, Trump received more than a third of California’s votes. In Santa Clara County — the district that is home to the headquarters of Apple and Nvidia, among others — one in four people voted for Trump.

Silicon Valley and the surrounding Bay Area is also an economically very prosperous region. Of around 7.5 million residents, over 300,000 are millionaires in dollar terms. The average price of a house in Atherton — an upscale suburb sandwiched between Menlo Park and Redwood City — is roughly 75 million kronor. There is, simply put, enormous wealth — and there has been for a very long time. And that very wealthy individuals tend to vote more to the right than the left is a pattern easy to identify, even within this otherwise liberal enclave of America.

The tech elite’s newly awakened interest in politics can be traced back to a specific date: March 22, 2021. That was when Joe Biden nominated Lina Khan, a young law professor from Columbia Law School, as the new head of the Federal Trade Commission. Her arrival was a turning point in how tech companies needed to relate to politics. It had been relatively easy and quiet until then. The tech giants had been allowed to become giants, with minimal intervention from regulators. That was about to change.

Khan was already well-known before her appointment. As a 27-year-old doctoral student she had published an academic article in the Yale Law Journal. “Amazon’s Antitrust Paradox” was the title — a nod to a well-known 1970s book on competition law, Robert Bork’s “The Antitrust Paradox.” In her article Khan argued for the opposite of what Bork’s book claimed. Judging competition cases by whether consumer prices went up or not — Bork’s main argument — was not applicable across all contexts, she argued. For tech companies — and Amazon in particular — low prices for consumers could still lead to a long-term erosion of competition. Amazon’s data on consumer behaviour helped it build a better store, to the point that competing with it could become nearly impossible over time. What felt cheap to individual buyers on Amazon could end up being very costly for society as a whole. The article had major impact and set the tone for how the FTC would approach competition cases in an era dominated by a handful of tech giants.

Under Lina Khan’s leadership, the FTC sued Microsoft when it tried to acquire Activision Blizzard, one of the world’s largest video game companies. It sued Amazon over convoluted subscription cancellation flows for Prime. And in autumn 2023 the agency sued Amazon for holding an illegal monopoly in the e-commerce market — the thesis Khan had advanced in her original article. The message is clear: maintaining fair competition in the tech sphere is worth fighting for.

For the first time since today’s tech giants grew large, they now have to reckon with politics. For boards and investors it has become an almost existential question. For Silicon Valley’s venture capitalists, Lina Khan has become a symbol of how politics interferes with and ruins a functioning market. In a blog post, venture capitalist Marc Andreessen wrote that “regulators are blocking and punishing startups from being acquired” — leaving little doubt about which regulator, and which relatively newly appointed head of it, he had in mind.

Investor Peter Thiel was one of the few to take political sides early — he spoke at the Republican National Convention as far back as 2016. This year he has been joined by heavyweights including Marc Andreessen and Ben Horowitz, two of the most influential venture capitalists in the world, both now publicly backing Trump (though Horowitz recently also donated to Kamala Harris). Why are they so invested in ending Biden and the Democrats’ time in power?

Part of the answer lies in venture capital’s fundamental business model. They invest in high-risk small companies, and if some of them grow, they can either be sold or listed. The modest initial investment has by that point multiplied and generates the fund’s entire return. But this model has run into trouble in recent years — roughly since Lina Khan took over at the FTC. The problem: no one is buying companies any more. Meta has not made a single major acquisition in the past two years. Google has made only two minor ones. Compare that to the equivalent period before Khan’s arrival, when each company completed around ten such deals per year.

At the same time, tech IPOs are at their lowest level since the 2008 financial crisis — worse than any year going back to 1980. The tap that watered venture capital has been turned off. The big companies no longer dare make the same kinds of deals as before, for fear of having them blocked by Lina Khan and the FTC. Buying Instagram for a billion dollars, as Facebook did in 2012, is today unthinkable.

As an alternative, many venture capitalists — including Andreessen and Horowitz — have invested billions in cryptocurrencies, a sector that appears headed toward heavier regulation, which is the last thing investors want. Trump has taken a clear stance on this. He spoke at the major bitcoin conference in Nashville earlier this year, discussing among other things using the cryptocurrency to pay down the national debt — exactly how was unclear. But the crowd cheered when Trump promised to fire Gary Gensler, head of the financial regulator SEC, who has become the face of all cryptocurrency regulation. After making the promise, Trump called out: “I didn’t know he was so unpopular!” For that audience, he is. And Trump’s message may be opportunistic — but it is at least clear: under him, there will be no more regulation of this industry.

Back at UCLA, David Sacks sits at the far right of the stage. This summer he hosted a fundraising dinner for Donald Trump’s presidential campaign at his home on what is known as “billionaire’s row” in San Francisco. Tickets started at around three million kronor. Sacks is no newly minted Republican, but his profile and volume are higher than ever before. As the political world steps into the tech world’s territory, figures like David Sacks have decided to make the reverse journey loudly. It is easy to understand why. After twenty years of near-total political free rein to do whatever they wanted, the region’s enormous wealth has only grown. The deals have got bigger, and so have the profits.

Now Washington DC is trying to catch up. And Silicon Valley — which until now has had every incentive in the world to stay quiet and keep its head down — is slowly waking up to a world where it may no longer be able to do exactly as it pleases.


A Nobel Prize for Google — which may now be broken up

October 9, 2024
by Björn Jeffery
SvD Näringsliv





Nobel Prizes for Google — which may now be broken up

Published in Svenska Dagbladet, 2024-10-09. Translated from Swedish.

Two Nobel Prizes linked to AI went to Google this week. But it is ordinary search ads that have paid for the development behind them — and now those ads are under threat.

Most companies would be thrilled to have had even one Nobel Prize recipient among their staff at any point. Google has just received two — in one week. Geoffrey Hinton, joint recipient of the physics prize, has admittedly left Google since last year, but worked there for ten years before that. Demis Hassabis, one of three sharing the chemistry prize, heads Google’s AI unit, DeepMind.

Both appointments are in different ways related to the development of artificial intelligence — an area that has been a core focus since Google’s current CEO Sundar Pichai took over in 2015. Less than ten years later, the world is in the midst of an accelerating AI race, with entirely new competitors like OpenAI’s ChatGPT challenging Google at the very heart of its business: delivering the right information, quickly, to those who search for it.

The Nobel announcements come at a particularly interesting — and somewhat ironic — moment for Google. AI development has so far been primarily a cost for the company. The hope is that it is an investment in the future. But what has paid for it to date is something considerably more mundane and undramatic: search advertising.

The way those ads are sold has begun to be questioned — including in the courts. In September a legal process began in the United States to examine whether Google’s ad sales constitute a form of monopoly. The outcome will be known in a few months. In a separate ruling from August, it was established that Google holds a monopoly in the search market. On Tuesday the US Department of Justice submitted its views on what remedies should be imposed to address that monopoly.

It was not pleasant reading for Google. “Radical and sweeping” was how a Google legal executive described the proposals. The DOJ wants Google to be broken up. If the American Justice Department gets its way, products like the Chrome browser and the Android mobile operating system could be forced to separate from the rest of the business — both to prevent Google’s dominant position in search from being further entrenched, and to make the search giant less competitive in artificial intelligence.

The significance of such a break-up would be hard to overstate. Revenue from search advertising accounts for around 57 percent of Google’s total revenue. Add roughly 10 percent from YouTube and around 9 percent from ads shown on third-party sites. Google may want to position itself as an AI company — but in all material respects it is still an advertising company.

The strong profitability from those ads is what has financed major acquisitions and AI investments. Both Geoffrey Hinton and Demis Hassabis came to Google through companies it acquired. Being able to pick up promising research projects early and let them develop inside Google has been a strategy that worked well for many years. Few other companies would have the means — or even the ambition — to run that kind of project without being able to directly attribute revenue to it.

DeepMind — the division where Demis Hassabis works — was acquired ten years ago for around four billion kronor at today’s exchange rate. Add ten years of salaries and expensive infrastructure on top. Even the T in competitor ChatGPT — transformer — is a technology originally developed by Google.

Something as simple as a text ad in a search result has thus paid for one of the most advanced areas of technological development we have today. What happens if the US Justice Department gets its way and Google is split into smaller pieces — and the company’s strong position in the advertising market weakens? The tap for some future technologies could be turned off. That may sound like a good outcome for the free market. But it is today’s ads that are paying for tomorrow’s Nobel Prizes.


A power struggle straight out of Silicon Valley

October 7, 2024
by Björn Jeffery
SvD Näringsliv





The fight in Klarna’s boardroom is a sign of things to come

Published in Svenska Dagbladet, 2024-10-07. Translated from Swedish.

Tensions are rising ahead of Klarna’s approaching stock market listing. A power struggle with echoes of Silicon Valley appears to be taking shape in the boardroom.

For 19 years Klarna has been a privately held company. Its twentieth year looks set to be different. CEO Sebastian Siemiatkowski has been unusually clear — for the CEO of a major tech company — about his ambitions and plans for a listing. If Klarna goes public in 2025, much may change.

Life on the stock market is something different, for better and worse. Both the CEO’s outspokenness and the company’s operations may need to adapt. The internal struggle between Klarna’s major shareholders should be seen in that light. The Financial Times reports that the board intends to remove Mikael Walther from its membership in the near term. Walther represents Victor Jacobsson, one of Klarna’s founders and its third-largest shareholder.

Jacobsson is not currently active at Klarna beyond being a shareholder — but he has consolidated that position over recent years, buying shares on multiple occasions from former employees or investors who wanted to exit.

Siemiatkowski, for his part, is the fourth-largest shareholder and the company’s CEO. That combination gives him enormous power. Strictly speaking the voting register may not look overwhelming, but in practice it is decisive. It is unthinkable that a board would pick a fight with — or even irritate — a CEO whose company is about to list. And the absence of challenge creates power in these contexts.

The conflict between the two co-founders appears to stem from differing views on that power. How much influence will Siemiatkowski hold once the company is listed? The informal power will of course remain even in a public setting — but the complexity will increase. New shareholders will arrive who have no interest in old merits and achievements. Groups of shareholders will vote according to rules that can seem rigid, at least to those accustomed to private companies. A different way of running Klarna will be required, whether one wants it or not.

The issue is well-known. Among the American tech giants there are many entrepreneurs who have found ways to keep the best of both worlds — the control of a private company and the capital access of a public one. The method used is to convert some shares into super-voting stock, creating a controlling influence without needing to hold a majority stake. Sweden has plenty of examples of this too, including in Investor AB. By changing the share classes, founders create a mechanism to retain control. There is much to suggest it is precisely this type of process that the two Klarna founders disagree about — and what underlies the potential board change.

Changing share classes can seem unfair to individual shareholders, but it can also have advantages. The method creates a predictability and continuity that stock markets sometimes struggle to provide. Consider Twitter, bought by Elon Musk in 2022. The focus at the time was largely on the price and the conflict between buyer and seller. Less reported was that Twitter was one of the few larger tech companies where a takeover — without the consent of major shareholders — was even possible. Twitter did not have super-voting shares. Snap, Meta and Pinterest all do. That is why Twitter could be taken private and begin its transformation into what is now known as X.

Klarna has undergone major changes recently. It sold its checkout solution and has launched a long series of AI initiatives — the aim being to present a different kind of company than the image Klarna once had, in order to be well received on the markets.

The boardroom fight is a sign of the kinds of situations that may become more common going forward. It is understandable to want to keep control of the company close. It would be having the cake and eating it too. But having sceptical shareholders — perhaps all the way into the boardroom — is a situation Klarna and Siemiatkowski may need to get used to. On the stock market, more people get a say — even if super-voting shares help.


The layoffs won’t solve the problems

September 23, 2024
by Björn Jeffery
SvD Näringsliv





The layoffs won’t solve Northvolt’s problems

Published in Svenska Dagbladet, 2024-09-23. Translated from Swedish.

1,600 employees are losing their jobs at Northvolt in Sweden. Meanwhile, future financing is still not in place. What is actually happening now?

Why is Northvolt making so many redundancies now?

According to the company it is a result of the “macroeconomic climate” and the need to focus on fewer things. The expansion of the Skellefteå factory — which was supposed to triple production capacity — is now on ice. Northvolt Labs, based in Västerås, will continue at reduced pace.

Northvolt has faced serious problems with both production delays and the quality of its batteries. Despite significant improvements during the year, the existing factory is still running at only five percent capacity. Larger changes were therefore expected to be necessary.

How do the layoffs affect Northvolt’s future financing?

Northvolt is laying off around 20 percent of its global workforce. This will lead to a significant cost reduction — but probably not large enough to solve the battery company’s financial problems. It is more likely a condition set by prospective financiers: cut costs substantially before they are willing to invest more money.

The cost savings from redundancies take time to show up on the bottom line. Notice periods can be long and severance pay or similar programmes may apply. Northvolt saving its way out of a crisis is therefore unlikely — this looks more like a restructuring to ensure the financing the company needs can be put in place. Something the company has been forced to do to meet the conditions that financiers are imposing.

How will things go for Northvolt going forward?

The company still faces enormous challenges. CEO Peter Carlsson himself cites macro factors, but there are far more immediate internal issues at play. Persistently low capacity at the factory has caused major delays, and customers — including shareholders like BMW — have cancelled their orders. Northvolt has also experienced several workplace accidents and employee deaths that have not been satisfactorily explained. Reports have emerged that batteries are not meeting the quality standards promised. There is still a great deal that Northvolt needs to resolve.

But the most pressing issue is financing. Northvolt is still in a build-up phase and is losing large sums every month. New financing must be secured for the company to continue operating. Monday’s announcement suggests a temporary solution may at least be on its way — but that financiers are setting tough conditions for it. What appears to be emerging is a different, substantially smaller Northvolt. And it is still not clear who would be willing to fund it.

Can the Swedish state become a shareholder in Northvolt?

Prime Minister Ulf Kristersson has told Swedish Radio that the state will not become a shareholder in Northvolt, but that it may be able to help facilitate the financing process where possible. Northvolt’s Peter Carlsson has himself said that the state — and other stakeholders, including the German government — must contribute to a long-term solution. What that would look like in practice remains unclear.


Is anyone willing to save Northvolt?

September 16, 2024
by Björn Jeffery
SvD Näringsliv





Who can save Northvolt from its crisis?

Published in Svenska Dagbladet, 2024-09-16. Translated from Swedish.

The crisis at Northvolt is deepening. Money is running out and the options are few. Who can save the company now?

More than 100 billion kronor has been pumped into Northvolt. Now the ground is shaking beneath the giant battery factory in Skellefteå before it has even reached full production. Customers have pulled out, employees have been given redundancy notices — and the money is running out.

When a company is doing well, its shareholder list resembles a hall of fame — representing those who saw something before others did, believed in the vision, and are now richly rewarded at a sale or listing. In the opposite scenario — when a company looks to be on its last legs — being on that list is not so glamorous. Owners must then ensure the company survives. Having to inject more money into a struggling business can feel painful. But it may also be the only way to rescue the investment already made.

In Northvolt’s case the shareholder list is long — and the names are well-known. The question is how many of them are willing to help the company out of its crisis, and whether it will be enough.

The largest shareholder is Volkswagen, with a 22 percent stake. But the German automotive giant has its own problems, which may make it difficult for them to step in. Earlier in September it was reported that Volkswagen was considering closing factories in Germany — which would be the first time in the company’s history. The aim is to cut costs, but it is unclear when negotiations with German trade unions would begin. Is this the right moment to inject more capital into a struggling Swedish battery factory? Hardly. On Monday Bloomberg reported that Volkswagen was in “close contact” with Northvolt — but no concrete investment figures were mentioned, and more importantly, no conditions were specified.

The second-largest shareholder is investment bank Goldman Sachs. A market capitalisation of around $150 billion gives an indication of the resources available. But it is unclear to what extent the bank actually holds Northvolt shares on its own behalf, as it also trades on behalf of clients. The position may be registered in Goldman Sachs’ name but actually consist of many smaller investors channelling money through the bank. Goldman Sachs has declined to comment on the ownership structure.

Third largest is Vargas Holding, the investment company of Harald Mix. He has told Affärsvärlden that they “will of course continue to support the company financially if that becomes relevant.” Well and good — but Vargas’ pro-rata share of a rights issue would be around one billion kronor, while the total investment made by Vargas and Harald Mix’s private holding company Kallskär amounts to 175 million kronor. To defend their stake they would in other words need to more than quintuple their investment.

The full shareholder list is long, but only the two largest own double-digit percentages. There is no dominant major shareholder beyond them — a weakness for Northvolt in this situation. A rights issue of this magnitude would require considerable time and scrutiny from the investor community. Moreover, many of the smaller players tend to look at how the larger ones act. If the biggest shareholders participate in a new round, the others may follow. But the reverse is equally true.

There are of course other forms of financing beyond rights issues. Loans and credit have been mentioned frequently in connection with the company. The Swedish National Debt Office has issued loan guarantees, for example — though these relate to loans that have not yet been disbursed, according to finance minister Elisabeth Svantesson, who has also stated that it is “not relevant” for the government to assist with the company’s financial problems.

So why is Northvolt not drawing on the state loans, if it is facing a liquidity crisis? Most likely because they are conditional on a rights issue. This structure is common for late-stage technology companies: the combination of a rights issue and a loan allows the money to go further without diluting existing shareholders’ stakes as much. But it typically requires the rights issue to be in place first — which Northvolt appears to be struggling to arrange right now.

A final possibility is that a completely new player decides to step forward — a white knight. It is unusual but not impossible. Such an actor would however need to explain to themselves why they understand Northvolt’s future potential better than the existing shareholders who have chosen not to invest. That reasoning tends to be difficult to make. There is one exception: if the valuation can be pushed down far enough that a large stake can be acquired for a relatively small sum. But if a player is looking at Northvolt from that perspective, why would they be in any hurry? Buying a company out of receivership will be cheaper and quicker than negotiating right now.

Many parties are likely watching and would be ready to act if that opportunity arises. But they will not rush the process toward it. The only one who is in a hurry right now is Peter Carlsson, Northvolt’s CEO — and time does not appear to be on his side.


Is the screen really the problem?

September 4, 2024
by Björn Jeffery
SvD Näringsliv





Little evidence of a link between mental illness and screen time

Published in Svenska Dagbladet, 2024-09-04. Translated from Swedish.

Opinion.

The screen is today the route to community, news, schoolwork and culture. Rather than restricting access to the phone, we should ask ourselves what is actually happening on it.

At Ohio State University in the spring of 1947, a panel convened to discuss the great media question of the day. Parents were worried and experts were called in. Is radio really good for our children? The panel debated whether some programmes were harmful, while others felt it was the sheer volume of radio listening that most affected children and family life. A telling quote about the panel in the Muncie Evening Press describes how “instead of sharing the experiences of the day, everyone escapes from each other. Radio makes thinking, good conversation and concentration almost impossible.”

I think about this after reading the 94-page knowledge compilation produced by Sweden’s Public Health Agency and the Media Authority. The report addresses the link between digital media and young people’s health, and forms the basis for the screen-time recommendations recently released.

The assumption that there is a connection between screens and young people’s health is taken for granted before the work has even begun. The many pages then attempt to substantiate that thesis as best they can, using scientific research and various other studies. It does not go particularly well. There is very little research suggesting that the link is as strong as many parents may feel it to be. It is also difficult to make confident statements about recommendations for people aged 0 to 25 — the age range the report covers. Restrictions on screen time for children under two are less controversial than for older teenagers.

The subject is familiar to me. Beyond being a parent myself, I founded and was CEO of one of the world’s largest children’s games companies, Swedish Toca Boca. For eight years I worked in Sweden and the United States on everything from legislation and privacy protection to product development and communications. I have spent countless hours discussing screen time with researchers, teachers and parents — including the person behind the American screen-time recommendations from the AAP, the American Academy of Pediatrics. They have had theirs for 25 years. In Sweden we got ours only now.

As the radio example shows, parental anxiety about children is nothing new. In the late 1800s parents worried that young women could not distinguish reality from fiction — because they read too many novels, as depicted by Gustave Flaubert in Madame Bovary, whose book-addicted heroine is drawn into a corrupting fantasy world. The video violence debate of the 1980s was not entirely different. The fact that anxiety repeats itself is no reason to dismiss it. But it can help us contextualise it — and by looking back we can also see how those earlier concerns played out. An overconsumption of fiction and radio did not become a major social problem, after all.

When the Public Health Agency looks for problems with screen time, this perspective seems to have been lost. The report cites cross-sectional studies, described in the report as giving “a picture of how factors are related to each other, even if it is not possible to determine whether there are causal relationships.” Particularly clear causal relationships are not to be found — neither in the material nor in the world at large.

At the press conference where the recommendations were presented, the social affairs minister said that “we cannot simply stand by and watch as young people feel worse and screens tighten their grip on their lives.” The concern for young people’s wellbeing is something many can share — but why presuppose the cause? Statistics Sweden data shows that anxiety, worry or angst among 16–24-year-olds has increased. But that increase started in 1994. Instagram launched in 2010 and TikTok in 2016. Screens may well be a contributing factor, but singling them out as the cause of young people’s mental health is a one-eyed analysis.

What about sedentary behaviour? Parents have always felt that children should be “outside playing” rather than whatever it is they want to do instead. Looking at the Public Health Agency’s own data: the proportion of children aged 11 to 15 who exercise at least four times a week has increased — nearly tripled in some cases — between 1985 and 2021. The share who are physically active for an hour has been stable for 20 years. Certainly there are likely groups of young people for whom activities have decreased in favour of screen-based alternatives. But the breadth of the problem does not appear as widespread as many parents experience it to be.

One of the recommendations is to limit teenagers’ screen time to a maximum of three hours a day. Parents who try to implement this restriction will have a hard time. The screen for a teenager — as for an adult — is the gateway to communication, community, news, schoolwork, music, literature and film. Everything happens on the same screen. Restricting at that level becomes faintly parodical — a swing at thin air that is unlikely to help either the conversations between young people and adults, or the wellbeing of either party.

One concept mentioned in the report is displacement effects: what happens when something crowds out other things important to wellbeing — food, sleep or social relationships, for example. Here there is a recommendation worth listening to: do not let any single thing crowd out everything else. But to do that, we need to look one level deeper than the screen itself. What is actually happening on it? Is it games providing constant, immediate feedback? It may be worth reducing those to maintain the patience needed for other things. If, on the other hand, it is a group chat providing support and care, that may be worth keeping.


Why Nvidia is crashing — and it’s happening now

September 4, 2024
by Björn Jeffery
SvD Näringsliv





2,800 billion kronor wiped out — why Nvidia is crashing

Published in Svenska Dagbladet, 2024-09-04. Translated from Swedish.

2,800 billion kronor were erased in a single day when the shares of hyped chipmaker Nvidia fell sharply on Tuesday evening. Why are they falling now?

It was a broader collapse across the chip and semiconductor sector on American markets on Tuesday. The category — which includes companies like Intel, AMD and Qualcomm — had its worst collective day since March 2020. Nvidia, as the market leader in the AI field, was hit hardest given how extreme its rise has been. In total Nvidia fell 9.5 percent on Tuesday and slipped a little further in after-hours trading.

One contributing factor is likely the growing anxiety that AI development will take longer than expected and not be as transformative as many companies had hoped. If companies like Microsoft and Google decide to invest less — or simply more slowly — in the AI sector, that would hit Nvidia directly.

It is also worth remembering how high the starting point was. Nvidia had gained 118 percent on the stock market so far this year, and with a market capitalisation of an almost incomprehensible 27,000 billion kronor, even small adjustments translate into enormous sums of money.

When Nvidia reported its quarterly results last week the numbers were stellar — and still not enough to meet market expectations. Nvidia’s profit nearly tripled and revenue grew 130 percent. Despite that, the report was received with mild scepticism as the forward guidance was not as glittering as in previous quarters. With sky-high expectations from the outside world, and a position as one of the most important companies in AI development, it is a stock watched with extraordinary scrutiny. The slightest signal that something may be stirring can create uncertainty.

Another factor that may have contributed has nothing directly to do with Nvidia. Monday was Labor Day in the United States — a public holiday that traditionally marks the end of summer. Everyone is back at work after the holiday period, and it acts as a kind of reset ahead of the coming autumn. It is possible that parts of the market reconsidered the sector somewhat during the summer break and became a little more cautious.

What happens next for Nvidia? The company has just reported quarterly results, so it will be several months before we see new figures. However, Bloomberg reported late on Tuesday evening that Nvidia is under investigation for suspected antitrust violations. That the Department of Justice was looking into this was already known — but the investigation has now advanced further and Nvidia has been formally required to provide internal information, which can be seen as an escalation.

Antitrust scrutiny has increased significantly in the tech world recently; Google was among those found to have an illegal monopoly in the search market. In Nvidia’s case it is not entirely clear what the DOJ is looking for, but Bloomberg reports it may relate to how customers are treated differently depending on how many different categories of products and services they purchase from Nvidia.

Should it emerge that Nvidia has in some way impeded fair competition, it could substantially alter the company’s business model and outlook. This type of investigation — regardless of outcome — generally takes a long time. An immediate concern about this specific issue is therefore unlikely to be the primary cause of Tuesday’s fall.