It’s little more than half a year since Spotify raised its last funding round of $526m, but according to a Swedish press report, the music-streaming service is tapping investors for more cash now.
Newspaper Svenska Dagbladet claimed that Spotify is meeting investors next week to seek a further $500m through convertible loan notes: loans that can be converted into equity at a later date. The publication claims to have seen internal Spotify documents verifying the plans.
The report suggested that Spotify will pay 4% interest on the loans, but that if the company goes public in the next year, the investors will get a 17.5% discount when converting those loans into shares.
Spotify has previously raised $1.06bn over seven rounds of funding since it was founded in 2006, so if the plans above come to fruition, it will be past the $1.5bn mark.
The news comes at a time when global music-streaming services are filling their wallets for the year ahead, with competition in the market intensifying.
Pandora recently raised $300m through its own convertible debt offering, while Deezer recently secured €100m of new funding from Access Industries and Orange, having cancelled its own IPO plans in 2015. Apple, Google and Amazon, meanwhile… well, they have plenty of cash reserves from their existing businesses.
There are several ways of looking at the use of convertible notes. In the tech world, it can be argued that this is standard business practice when stocking up for growth ahead.
Streaming sceptics are more likely to see this as evidence that companies like Spotify are now using debt as well as VC cash to drive unprofitable business models to IPO stage. Choose your side (or, more likely, you have chosen it already).
More titbits from the SvD story: it reports that Spotify claimed it had 45% of “users in the global market” – which we are taking to mean global music-streaming subscribers.
Spotify is thought to be on the verge of announcing that it has 100 million active users, which would suggest that it thinks the overall market is around 222 million music-streaming users.
If true, that is clearly not factoring YouTube or SoundCloud in. Pandora claims 78 million active users, but we wonder if Spotify’s calculations are focused on on-demand audio-streaming services – direct rivals, which would also leave Pandora out.
Spotify declined to comment on the speculation when contacted by Music Ally.