Last month, DMN first broke the story revealing Spotify’s $1 billion debt financing.
Now, a formal Securities & Exchange Commission (SEC) Form D filing confirms the earlier report. The filing highlights further information beyond those previously outlined, and allows us to take a greater look at the conditions of the deal.
It shows TPG, Dragoneer, and other issuers of the $1 billion tranche are part of a round that will be finalized withing one year (though will likely close much sooner). It also highlights the fact that Spotify has to pay a massive fee of $19,256,500 in sales commissions to Goldman Sachs and Nordea Bank.
Goldman is an equity stakeholder in Spotify, and stands to make a giant windfall from the company’s upcoming IPO. Now, Goldman is smartly double-dipping by also capturing fees surrounding the additional cash raise. Some of that will be captured by Nordea, in amounts undisclosed (or unknown).
But why does Spotify need so much cash, all at the same time?
The large injection of cash could afford a massively-accelerated rate of growth, with the capability to better compete with Apple Music, SoundCloud, and other aggressive platforms. The debt financing would also allow Spotify to preserve existing equity stakes, not to mention investor input, all of which comes with more proper equity rounds.
That said, $1 billion is a huge amount of money, with large monthly repayments and covenants that could seriously cramp the company in the future. And that doesn’t include the near-$20 million in financing Spotify is paying for Goldman’s high-end servicing.
Meanwhile, the mega-round is raising rumors of a possibly gigantic acquisition ahead, on the ‘Pandora level’ according to one DMN source. That could fatten the platform ahead of a juicy IPO kill, which is now expected to happen within the next year.
The complete filing is below.
The original article stated clearly that the debt was convertible. Spotify may pay nothing back to the investor in actual cash. Most likely, payment will come in the form of a combination of cash (inclusive of interest) and an equity stake in Spotify.
2% fee on a deal like this is fairly standard.
I’m not an accountant or in the financing business .. but this is an extraordinary large sum of money for a company that just streams music on the internet. Basically it has similarities to an online music radio station with music on demand elements.. A BILLION DOLLARS is one heck of a lot of money…. It strikes me that this company is really “all about the deal…” everyone seems to have their hand in the money pot and they’re huge numbers.. I kind of sense that the only ones missing out on the colossal sums of cash are the artists and songwriters who’s music is the product they’re distribution (streaming). At least with Netflix they spend large amounts of money creating content.. Am I right in thinking that Spotify just live off the creative content of others and reward themselves and their business friends with HUGE SUMS OF MONEY… I wouldn’t be at all surprised if this has a destiny similar to the over inflated tech bubble scenario that eventually pops..
No, you are not right. It is a distribution channel and curator of music. It also provides a platform to get an artist on one side of the world heard on the other side of the world without a massive printing of albums, overpaid record execs and payola incentivized radio programs. They pay 70% of revenue to the creative content producers but so whatever split the artist gets of that is due to their record deal, not Spotify.
Feels like a financial squeeze that may force Spotify to go public within the next 12 months, even if the market conditions are unfavorable. Any delay will make this debt much more expensive. I feel comfortable asserting that the contents of this agreement indicate Spotify was negotiating from a fairly weak position.
The banks will get paid either way, as they almost always do.
But, if there really is a streaming music bubble, a failed IPO by Spotify could be the beginning of the end. I’m not predicting that outcome… but I certainly consider it to be a possibility.
Absolutely. If the Tech/financial press’s coverage of Spotify wasn’t so fawning this should have been reported as a major red flag for the company going forward.
Spotify haven’t made it clear what exactly all this money will go towards. Back in 2013 there were rumors that Spotify was going to be a Netflix competitor, now their trying to be all things audio with podcasts, etc. While the press often touts Daniel Ek as some grand visionary, it is starting to seem more and more like this company is just winging it.
Jose everyone on the internet gets their content heard from one side of the planet to the other .. that’s not a big deal … also this catch term “curator”, it’s like that’s supposed to be some magic bean that means something… all it is is like a programmer choosing songs they’ll think you like based on what you’re already listened to.. Frankly I like to be my own curator .. it’s like how google ads chase you around on the internet with ads based on your browsing history… it’s annoying to me and it’s probably annoying to others too.. You can wrap it up all you like and put a bow on the top but I still don’t buy these crazy valuations and projected valuations.. The more I read into it the more it reeks of big money deals for their big money friends.. It’s almost that the content is irrelevant, that’s just the product.. just as easily be anything else.. Also the paid subscriber numbers are very wishy washy too.. a lot of free bundling with auto and cell carriers and these bump up the numbers… Having said all that.. I do support quality and real internet music distributions services that work for artists, producers, publishers, songwriters, labels and at least Spotify are paying something … of course most repertoire it’s still pennies.. the huge blockbusters make something more worthwhile.. and Spotify is certainly better than the pirates.. but they’re not really in the same league as Apple .. Apples is more full circle music with iTunes, Apple Music, Logic Pro X, GarageBand and their whole suite of tech devices.
Isn’t curator just another name for gatekeeper??
Unless you’re in this “sharing economy” in “the cloud”…. then I suppose it’s just another word for free labor. 🙂
Curate as in I listen to Discover Weekly and learn at least one band a week I really like that I’ve never heard of. Apple doesn’t give a sh*t about artists, they just want you to buy the latest iPhone and MacBook and stay in their ecosystem. People liked Spotify until it got big – I get it – but just bc some rich hedge fund guys want to invest crazy money at stupid valuations it doesn’t mean the company or product are bad. The market has determined that demand on the investment side. By saying they are greedy bc they raised a Billion dollars you sound naive. They raised it bc they can and they need it to survive against Apple who has 20x that amount in cash sitting unused.
” Apple doesn’t give a sh*t about artists”
Aaahh… but Spotify does ? That’s news…
Yeah, Spotify care about artists… that’s Spotify, run by one pirate (Fanning) and one pirate’s friend (Ek).
Since when does Fanning “run” Spotify?
Troglite they’re good points and I suspect you know more about the financials than me .. my comments and reply to Jose are really based on anecdotal media reports..
Jose and yourself may be more switched on with the situation. Frankly I hope paid music entities will prove to be supporting of independent music labels and the creatives behind the music.
We’re all all throwing stones from the sidelines. Fire away.
Your response to Jose was on point from my perspective.
Business practices that disenfranchise creators existed long before the Internet or Spotify. This is not a product of the information age. Technology is being used by advertisers and pirates to make money off of the backs of musicians. And technology is also benefitting musicians by broadening their reach, creating new uses, and radically lowering the cost of production.
Whomever uses the technology most effectively will dominate. Everyone else may be left fighting for the largest share of the scraps. Or, their might be enough for everyone. It’s too early to know. Fear plays a heavy hand in the market and this Web site.
One of the particularly interesting qualities of the Internet is that it enables minorities to organize and promote their causes. So, even if big business from the Tech and Entertainment industries dominate, I believe there will be opportunities for true independents with truly exceptional talent and drive.
“Last month DMN first broke the story”. Clever wording, almost like they were THE first one with story which obviously they had several days later after reading the WSJ etc..
At least someone made some money on Spotify.
“How come everybody’s raking in the cash except the creators who make it all possible?”. This is one of the best questions I’ve ever heard anywhere about anything.
Basically, a billion dollars vs. a yet to profitable model=doom.