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Jesus Christ, that's not clickbait, those really are devilish terms. It's debt, they lose $200MM of shares at the time of IPO, and they very well could end up p

Jesus Christ, that's not clickbait, those really are devilish terms. It's debt, they lose $200MM of shares at the time of IPO, and they very well could end up paying 15% interest yearly on this. And when the IPO happens, if it follows the general IPO trend and tanks at first, it's very possible TPG and Dragoneer will want to get out -- dumping 1.2 billion of Spotify onto the market and absolutely destroying the share price three months before employees can sell. Let's say they have a $8.5 billion IPO and they decide to sell: suddenly, 15% of their company was just dumped onto the market. There's no way they could survive that.

TheOtherHobbes 11y ago
Is there any kind of business case for this - besides what looks like blind panic? Spotify raised $500m last year. Now it seems to think it needs to nearly double its existing > $1bn funding/debt pile so badly it's willing to settle for a loan-shark mugging. I'd guess the money isn't needed for new customers - more to stay afloat long enough to have some hope of getting to IPO and allowing the investors to get some of their money back before the office burns down. Spotify would literally need to double its subscriber base to make this debt viable, and that doesn't seem likely.
- late2part 11y ago
  They clearly believe that they will die without this, and the wound taken allows them to survive.
  - neffy 11y ago
    I rather suspect they know they will die without this, and the more astute also probably realise they will die with it, but in the interim they can continue to draw good salaries and bonuses. And for the institutions in the loan agreement that are banks, all they're doing is some extra book keeping to raise the money involved.
hkmurakami 11y ago
>Spotify also has to pay 5% annual interest on the debt, and 1% more every six months up to a total of 10%. Fwiw I'm parsing this as the interest to service the debt topping out at 10% rather than 15% (which imo is a pretty big difference)
- nissimk 11y ago
  They can probably pay in kind and screw the investors more. Better than paying cash.
  - jamesdwilson 11y ago
    elaborate please? this is not my area of expertise.
    - nissimk 11y ago
      In kind interest payments let the lender increase the principal balance instead of actually paying interest. In this case it would be like issuing 10% more equity per year instead of paying the 10% in cash. It wasn't mentioned in the article if they have that option, but it wouldn't surprise me.
Alex3917 11y ago
I actually think discounts and participation caps would conceptually be much better if they were tied to IRR, as long as there are boundaries on each end. I get that in practice fixed values are used because they make the math easier and save lawyer hours, but it's a horrible misalignment of incentives.
danieltillett 11y ago
What I don’t understand is why they are raising this money? Do they expect that they are about to get into an all out war with Apple?
- x0x0 11y ago
  All out war for streaming customers with apple and google. Someone is going to collect $10 (plus $1 or $2 increase every couple years) per month for a huge segment of the music listening population for basically the rest of our lives. Spotify want it to be them.
  - ghaff 11y ago
    And Amazon which doesn't have as good a library but which includes it for "free" for Prime customers and which now has an Echo device that is gaining some attention?
  - danieltillett 11y ago
    Is there any reason to think that this market is a winner take all? The labels will do anything to prevent another Apple arising including backing any upstart that wants to challenge the big players. When you are just a middle man it is hard to create a monopoly.
    - estreeper 11y ago
      > Is there any reason to think that this market is a winner take all? I personally doubt it. Exceedingly few markets are winner-take-all. Plus, monthly subscribers are "sticky", so they're not going to leave overnight if one competitor gains a slight edge, and everyone else will have a chance to catch up. Your point about the labels and streaming services as middle men is a good one too. Labels own all the content, so they have a lot of power to influence the market as well.
    - tomjen3 11y ago
      You need to have all, or almost all music, for people to sign up with you. I wouldn't be a paying spotify customer if it wasn't because they had almost all the music I wanted. What we really need are a change to copyright laws that requires a mandatory uniform-fee-only streaming license for all music, tv and movies.
lefstathiou 11y ago
It's very rare (ie likely unable to succeed) to see a "sponsor" dump all of their holdings in a stock when a company goes public so that is very unlikely to happen for the obvious reason that if you were a large institutional investor in the IPO, you would not appreciate an owner that understands the business to exit while you come in. There are also limits on how many shares owners can sell (lock-up periods).

TheOtherHobbes 11y ago

Is there any kind of business case for this - besides what looks like blind panic? Spotify raised $500m last year. Now it seems to think it needs to nearly double its existing > $1bn funding/debt pile so badly it's willing to settle for a loan-shark mugging. I'd guess the money isn't needed for new customers - more to stay afloat long enough to have some hope of getting to IPO and allowing the investors to get some of their money back before the office burns down. Spotify would literally need to double its subscriber base to make this debt viable, and that doesn't seem likely.

late2part 11y ago
They clearly believe that they will die without this, and the wound taken allows them to survive.
- neffy 11y ago
  I rather suspect they know they will die without this, and the more astute also probably realise they will die with it, but in the interim they can continue to draw good salaries and bonuses. And for the institutions in the loan agreement that are banks, all they're doing is some extra book keeping to raise the money involved.

hkmurakami 11y ago

>Spotify also has to pay 5% annual interest on the debt, and 1% more every six months up to a total of 10%. Fwiw I'm parsing this as the interest to service the debt topping out at 10% rather than 15% (which imo is a pretty big difference)

nissimk 11y ago
They can probably pay in kind and screw the investors more. Better than paying cash.
- jamesdwilson 11y ago
  elaborate please? this is not my area of expertise.
  - nissimk 11y ago
    In kind interest payments let the lender increase the principal balance instead of actually paying interest. In this case it would be like issuing 10% more equity per year instead of paying the 10% in cash. It wasn't mentioned in the article if they have that option, but it wouldn't surprise me.

Alex3917 11y ago

I actually think discounts and participation caps would conceptually be much better if they were tied to IRR, as long as there are boundaries on each end. I get that in practice fixed values are used because they make the math easier and save lawyer hours, but it's a horrible misalignment of incentives.

danieltillett 11y ago

What I don’t understand is why they are raising this money? Do they expect that they are about to get into an all out war with Apple?

x0x0 11y ago
All out war for streaming customers with apple and google. Someone is going to collect $10 (plus $1 or $2 increase every couple years) per month for a huge segment of the music listening population for basically the rest of our lives. Spotify want it to be them.
- ghaff 11y ago
  And Amazon which doesn't have as good a library but which includes it for "free" for Prime customers and which now has an Echo device that is gaining some attention?
- danieltillett 11y ago
  Is there any reason to think that this market is a winner take all? The labels will do anything to prevent another Apple arising including backing any upstart that wants to challenge the big players. When you are just a middle man it is hard to create a monopoly.
  - estreeper 11y ago
    > Is there any reason to think that this market is a winner take all? I personally doubt it. Exceedingly few markets are winner-take-all. Plus, monthly subscribers are "sticky", so they're not going to leave overnight if one competitor gains a slight edge, and everyone else will have a chance to catch up. Your point about the labels and streaming services as middle men is a good one too. Labels own all the content, so they have a lot of power to influence the market as well.
  - tomjen3 11y ago
    You need to have all, or almost all music, for people to sign up with you. I wouldn't be a paying spotify customer if it wasn't because they had almost all the music I wanted. What we really need are a change to copyright laws that requires a mandatory uniform-fee-only streaming license for all music, tv and movies.

lefstathiou 11y ago

It's very rare (ie likely unable to succeed) to see a "sponsor" dump all of their holdings in a stock when a company goes public so that is very unlikely to happen for the obvious reason that if you were a large institutional investor in the IPO, you would not appreciate an owner that understands the business to exit while you come in. There are also limits on how many shares owners can sell (lock-up periods).