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T. Rowe Price slashes Canva stake by two-thirds – what does this mean for investors?

T. Rowe Price slashes Canva stake by two-thirds – what does this mean for investors?

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Canva’s Valuation Declines Dramatically

Canva, a design platform based in Sydney, was valued at $40 billion by investors in Fall 2021. However, T. Rowe Price, a mutual fund company which invested aggresively into late-stage startups throughout the pandemic, has marked down its valuation of Canva’s stake. T. Rowe confirmed a markdown of 67.6%, and its Blue Chip Growth Fund, which owns several classes of Canva shares, now values those shares on a cost-adjusted basis at $32.1 million.

T. Rowe’s Take on Canva’s Valuation Decline

Although a spokesperson for Canva downplayed T. Rowe’s assessment and commented on the longevity of the company, it is notable that Canva is currently worth $13 billion and not $40 billion. This decline in valuation was confirmed by one of the savviest asset managers in the United States. Canva’s independent 409A valuation is not in alignment with T. Rowe’s assessment.

Klarna’s Similar Experience with Valuation Markdowns

Canva is not the only company that is experiencing a significant markdown by their backers after growing indefinitely in 2021. Stockholm’s Klarna experienced the same downfall, with its valuation dropping to $6.7 billion from its assigned $45.6 billion from 2021, a markdown of 85%. However, Klarna accepted its reduced valuation and probably tightened its lending standards and reduced costs through repeated layoffs to reach its momentum in the digital financial assistant industry today.

Impact of Generative Artificial Intelligence

Both Canva and Klarna are actively changing via generative artificial intelligence and using this opportunity to its advantage. In line with Klarna’s statement in a press release, OpenAI has helped accelerate their shift towards their financial services

Canva’s Integration of Generative AI in their Products

Canva, a graphic design collaboration that has its own in-house build of generative AI, was infusing AI across its product suite. They largely rely on Canva’s large language models and co-founder and CEO Melanie Perkins emphasizes that the users’ creations entirely belong to them. With the AI text generator, background remover product, and text-to-image generator, customer testimony attests to the effectiveness of Canva’s AI innovations.

Possible IPO?

Although speculations of an IPO for Canva might come to mind with their rapid growth, there’s no word on an offering as of now. Co-founder and COO Cliff Obrecht viewed the IPO as an ‘inevitability’, but it is not immediately on the horizon.

FAQs

What is Canva?

Canva is a Sydney-based design platform for graphic design collaboration that relies partly on major large language models.

What is T. Rowe Price?

T. Rowe Price is a mutual fund company that began investing aggressively into late-stage startups nearly a decade ago and continued to fund them throughout the pandemic.

What is OpenAI?

OpenAI is an artificial intelligence laboratory consisting of a for-profit company and a non-profit company.

What is a 409A valuation?

A 409A valuation is an IRS-approved method of valuing the fair market value of the common stock of a privately-held company. Canva has an independent 409A valuation that does not match up with T. Rowe’s assessment.

What is generative artificial intelligence?

Generative AI is a form of machine learning that enables machines to generate content such as audio, video, and text.

What other startups experienced markdowns like Canva?

Klarna, Stockholm’s buy-now-pay-later provider experienced an 85% markdown after initially being assigned a $45.6 billion valuation.

Is an IPO in sight for Canva?

Although co-founder and COO of Canva Cliff Obrecht believes it to be an inevitability, an offering is not on the horizon.

How successful have Canva’s AI innovations been?

Canva’s AI text generator, text-to-image generator, and background remover product have generated more than 1 billion words, 200 million images, and nearly 2 billion backgrounds, respectively.

Conclusion

Although Canva is currently valued at $13 billion, its performance is still very significant in the design platform market, generating over a billion words and backgrounds for customers to use. Modern technology such as generative AI has a significant impact on the growth of companies in the design industry such as Canva and Klarna. Despite speculations of an IPO, it may not be on the horizon, but Canva’s strategic innovations promise long-term growth and a potentially high mark-up in its valuation.

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