![]() [Update: If Spotify can grow its value significantly and the IPO goes well, the discount and early sale terms won’t be that bad. Then again, employees’ stock is only valuable in Spotify succeeds, and it needs this cash to do so. This all could screw employees if Spotify has a bad year vs Apple Music, since the deal gives these late-stage investors cheaper shares and early sale advantages. And finally, TPG and Dragoneer can sell their shares just 90 days after the IPO, before the 180-day lockup period ends for Spotify’s employees and other investors. Spotify also has to pay 5% annual interest on the debt, and 1% more every six months up to a total of 10%. And if it doesn’t IPO within the next year, that discount goes up 2.5% every extra six months. ![]() TPG and Dragoneer get to convert the debt to equity at a 20% discount of whatever share price Spotify sets for an eventual IPO. If Spotify doesn’t perform well, some aggressive deal terms could cost it a lot of money. Spotify confirms the news is true, and TPG tells me “This financing gives them the strategic resources to further strengthen their leadership position.” The money will be spent on growth and marketing. By raising debt rather than equity, it doesn’t have to worry about poor signaling from a down-round raised at a lower valuation than the $8.5 billion it set in June 2015. Today Spotify raised $1 billion in convertible debt from TPG, Dragoneer, and clients of Goldman Sachs, as first reported by Wall Street Journal’s Douglas MacMillan. So it makes sense that Spotify would be willing to raise money at ugly, exploitative terms now for a better chance at earning those riches later. Whoever can sign up customers faster to consume their data and network effect could earn money off them for a long, long time. On-demand streaming music is inevitable, so Spotify is taking whatever fuel it can get to win the race against Apple.
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