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Spotify Raises $1 Billion Through Financing Deal

March 30
7:56 PM 2016

Spotify is looking forward to closing a deal of $1 billion doubling the amount of financing it has raised since its establishment ten years ago. The said fund will come as a convertible debt and can be used for acquisitions, international expansion and investments.

Music-streaming company Spotify is about to double its fund by closing a deal of $1 billion. The fund was rounded by private-equity firm TPG together with Dragoneer injecting $750 million in the $1 billion deal where the rest came from institutional investors. The transaction was arranged by Goldman Sachs and is expected to close on Friday, according to the New York Times.

The money will be in the form of convertible debt enabling Spotify's investors to change their securities into company shares in the future.  By utilizing this type of debt, Spotify acquires the fund without requiring changing its assessment. However, the terms of the debt may put pressure on the company to go public sooner.

The Wall Street Journal reports that as a return for the financing, Spotify pledged to its new investors stringent rules attached to an IPO.  If it holds a public offering in the next year, TPG and Dragoneer are free to convert debt into equity a 20% discount of the public offering share price.

Spotify will also pay 5% annual interest with an increase of 1 percentage point every six months until the company goes public or until it reached 10%. The interest which is also called a 'coupon' will be paid in the form of a new debt instead of cash which generally is used in private-equity deals but seldom seen in venture funding.

Spotify continues to top the streaming music industry with almost 30 million subscribers.  Its rival Apple Music is establishing with more than 11 million paying users obtained in half a year, says Billboard.

The music streaming company has an equity valuation of $8.4 billion last year. As Spotify became more influential, artists and labels need it likewise as the music companies.

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