Spotify Raises Another $1 Billion, Promises Investors an IPO

There may be bigger unicorns out there, but Sweden-based Spotify has been around longer than many of them. The streaming music company raised another $1 billion in funding in a deal that is expected to close this week, but the catch is that Spotify has virtually guaranteed an initial public offering (IPO) as a condition of the capital raise.

According to a report in The Wall Street Journal, private equity firm TPG, hedge fund Dragoneer Investment Group and clients of Goldman Sachs participated in the deal. The investors acquired convertible debt, which is convertible into equity at a 20% discount to the price at the IPO. If the IPO does not happen within a year, the discount rises by 2.5% every six months that the IPO is delayed.

Spotify also has agreed to pay a coupon of 5% on the debt, rising by 1% every six months if there is no IPO. The maximum coupon is 10%. The investors also have negotiated a lock-up period of just 90 days on their stock following an IPO. The typical lock-up period is six months.
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The Wall Street Journal cites sources who said that Spotify has indicated that the firm will hold an IPO in the next two years.

Spotify CEO Daniel Ek said last week that the service now has 30 million paid subscribers worldwide. Apple Music has claimed 10 million subscribers, and it was launched less than a year ago.

Spotify, founded in 2006 and launched in 2008 in Sweden, was valued at $8.5 billion in its last funding round in June of 2015.