Canva valuation plunges as T. Rowe Price reduces its stake
Canva is one of the most prominent design platforms in Australia. Last year, Blackbird, one of the country’s largest venture operations, wrote down the value of one of its biggest holdings, which is a stake in Canva. The company was valued at $40 billion by investors in a $200 million round in September 2021. Blackbird adjusted its own valuation of Canva by 36% to $25.6 billion. A few months later, T. Rowe Price, a mutual fund that joined late-stage startups over a decade ago, reduced the value of its stake in Canva in a considerable 67.6% drop. T. Rowe’s investment in Canva represents a small amount of money it has in the sprawling investment company, but it is remarkable that one of the smartest asset managers in the US thinks the company is currently worth $13 billion and not $40 billion. The company is currently transforming and taking advantage of generative AI, but its IPO horizon is not imminent.
Canva’s optimistic outlook amid T. Rowe Price’s downgraded stake
When asked about T. Rowe Price’s opinion, Canva representatives downplayed its significance, stating that “as a profitable company with very healthy cash reserves, we are in a fortunate position to continue to focus on building a long-lasting company, regardless of the macroeconomic environment.” The representative added that Canva is experiencing rapid and accelerating growth across all of its metrics, having recently surpassed 135 million monthly active users, which they believe is more accurate than relying on assessments from any one investor in isolation. Canva’s spokesperson also stated that they are confident that, regardless of market conditions, they will outperform their last valuation, thanks to their growth and pace of new product launches.
Klarna’s transformation amid valuation downgrade
Klarna, a Stockholm-based buy-now-pay-later provider, saw an even steeper valuation downgrade a year ago, dropping by 85% to $6.7 billion from the $45.6 billion valuation assigned to it in 2021. The company proactively accepted its reduced valuation and has since tightened its lending standards and cut costs, including through repeated layoffs. It says it is now “firmly on the right track” to achieve monthly profitability in the second half of the year. The company attributed some of its current momentum to OpenAI, stating that the integration with its great language model is “accelerating Klarna’s evolution into a digital financial assistant.”
Canva’s and other outfits’ adoption of generative AI
To maintain its own leadership position in the world of graphic design collaboration, Canva has integrated generative AI into its suite of products, much of which has been built in-house through long-term investment and acquisitions. The company also relies, in part, on mainstream big language models, although it is slowly using them. Canva’s CEO, Melanie Perkins, claims the company has intentionally relied less on the work of others to promise users that anything they create in Canva is theirs. Canva’s spokesperson stated that the company had generated more than 200 million images with its text-to-image offering, over 1 billion words written with its AI text generator, and nearly 2 billion backgrounds removed with its removal product.
Valuation downgrades – the norm in 2021
Canva and Klarna are not the only ones to experience heavy downgrades from their backers after hitting new valuation highs in 2021. Other companies, such as the Brazilian digital bank, Nubank, French payment-startup, Lydia, and Chinese fintech giant, Ant Group, faced similar downgrades. These downgrades in valuation follow significant fundraising from a vast number of investors, including venture capitalists and late-stage funds. The reasons for the downgrades vary, with poor performance cited in some cases and concerns over legal and regulatory issues cited in others. However, these downgrades serve as a reminder that investors must carefully assess the actual worth of companies that are raising increasingly large amounts of cash.
Additional piece:
The role of AI in changing the valuation of startups
The adjusting valuation of startups raises significant questions about the role of AI in this process. Investors’ decisions to increase or decrease a startup’s assessed value depends on various market factors, primarily AI intervention. Generative AI is rapidly transforming the financial and economic landscape, providing investors with more in-depth and comprehensive insights into startups’ risks and opportunities.
A recent study by the venture firm, MMC Ventures, indicated that AI is becoming increasingly ubiquitous in the valuation of startups. The study deplored conventional valuation methods used in the past, such as the sum-of-the-parts approach, which has become outdated in the light of more systematic methods approaching the challenges of assessing the value of startups.
Some VCs are now using AI-generated tools to understand the challenges, trends, and opportunities of startups, including NLP, ML, and even deep reinforcement learning algorithms. These algorithms have been invaluable in providing a fine-grained view of startups’ prospects and risks, enabling investors to make confident and informed decisions about valuations.
While AI remains central to the advancement of the valuation of startups, some criticisms have been raised regarding the opacity of AI decision-making and machine-generated bias. Investors should take note, and guard against over-reliance on specific AI algorithms, focusing instead on a blend of human and machine-driven data analyses.
In summary, AI is becoming central to investors’ valuation of startups, providing a more systematic way of assessing the value of companies. However, investors should not over-rely on machine decision-making and should complement it with human-driven data analysis to avoid potential biases. Investors evaluating the worth of startups should critically examine how AI algorithms are used to determine valuations.
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Last summer, Blackbird, one of Australia’s biggest venture operations, wrote down the value of one of its most prized holdings, in Sydney-based design platform Canva. Valued at $40 billion by investors in a $200 million round in the fall of 2021, Blackbird adjusted its own valuation of the company by 36% to $25.6 billion.
Now T. Rowe Price, the Goliath mutual fund that began aggressively investing in late-stage startups nearly a decade ago, continued to fund them through the pandemic and led the $40 billion round in 2021, has reduced the value of its stake. in Canva even more dramatically, adjusting it in a huge 67.6%. (T. Rowe’s Blue Chip Growth Fund, which owns several classes of Canva shares but predominantly Series A shares, has invested $99.1 million in Canva to date and states in its most recent prospectus, dated 31 March, which now values those shares on a cost-adjusted basis at $32.1 million).
Asked for comment earlier today, a Canva spokesperson downplayed the number, writing in an email: “As a profitable company with very healthy cash reserves, we are in a fortunate position to continue to focus on building a long-lasting company. long-term. Regardless of the macroeconomic environment, we are well positioned to continue doubling down on key initiatives, including growing our team and expanding our AI and product innovation efforts.”
The spokesperson added: “We are experiencing rapid and accelerating growth across all of our metrics, having recently surpassed 135 million monthly active users. It would be inaccurate to value Canva based on any one investor in isolation, and with our growth and pace of new product launches, we are confident that regardless of market conditions, we will outperform our last valuation as the markets do. right and our growth continues.”
T. Rowe’s investment in Canva represents a miniscule amount of money for the sprawling investment company. His Blue Chip Growth Fund had roughly $53 billion in assets under management at the end of the first quarter of this year, down from $63 billion a year ago, in June 2022.
Still, it’s remarkable that one of the smartest asset managers in the US thinks that a company that was for a time the fifth most valuable startup on the planet is currently worth much less: essentially $13 billion and not $40 billion.
When asked if Canva has adjusted its own independent 409A valuation to match T. Rowe’s assessment (after all, T. Rowe’s downgrade is just his opinion) the Canva spokesperson said his assessment does not match T. Rowe’s, but declined to comment. further.
Naturally, Canva is far from the only one to be heavily downgraded by its backers after hitting new valuation highs in 2021. Stockholm-based buy now pay later provider Klarna saw an even steeper downgrade a year ago. , falling down 85% to $6.7 billion, from the $45.6 billion valuation assigned to it in 2021.
Klarna, which proactively accepted its reduced valuation, has since tightened its lending standards and cut costs, including through repeated layoffsand says it’s now”firmly on the right track” to achieve monthly profitability in the second half of the year.
Like many other outfits right now, both companies are actively transforming and looking to take advantage of generative AI.
In a press release late last week, Klarna attributed some of its current momentum to OpenAI, saying the integration with its great language model is “accelerating Klarna’s evolution into a digital financial assistant.”
In an effort to maintain its own leadership position in the world of graphic design collaboration, Canva has also integrated generative AI into its suite of products, saying fast company in March that much of what is now infused everywhere has been built in-house through long-term investment and acquisitions.
Although Canva also relies in part on mainstream big language models (it is slowly using them, its spokesperson says), co-founder and CEO Melanie Perkins told FC that it has intentionally relied less on the work of others in order to promise users that “anything you create in Canva is yours.”
Your customers seem to like what they see. According to Canva, more than 200 million images have been generated with its text-to-image offering, more than 1 billion words have been written with its AI text generator, and nearly 2 billion backgrounds have been removed with its removal product. Of funds.
As for the impact of AI on Canva’s valuation going forward, that remains to be seen. While public shareholders will ultimately decide what they think the company is worth, there’s no bid coming in, at least not yet.
Asked about a possible IPO, a Canva spokesman said today that there are no plans in sight. Meanwhile, in March, Canva co-founder and COO Cliff Obrecht (who is married to Perkins), suggested Barron’s which is now a priority for the 11-year-old company.
“It is not the right market to go out at the moment. But obviously, it becomes inevitable at our size,” he told the outlet. “It’s on the horizon, but not on the imminent horizon.”
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