Music-streaming service Spotify has raised USD 1 billion in convertible debt from a number of investors, including TPG, Dragoneer and clients of Goldman Sachs, the Wall Street Journal reported, citing sources familiar with the matter said. The deal is expected to close at the end of this week.
In return for the financing, Spotify has promised its new investors strict guarantees tied to an IPO. Spotify indicated to its new investors that it plans to go public in the next two years. If Spotify holds a public offering in the next year, TPG and Dragoneer will be able to convert the debt into equity at a 20 percent discount to the share price of the public offering. After a year, that discount increases by 2.5 percentage points every six months, the people said. Spotify also agreed to pay annual interest on the debt that starts at 5 percent and increases by 1 percentage point every six months until the company goes public, or until it hits 10 percent.
TPG and Dragoneer will also be permitted to cash out their shares as soon as 90 days after an IPO, instead of the 180-day “lockup” period. The two are buying USD 750 million worth of the deal, with the remainder going to clients of Goldman Sachs, which advised on the financing.
While Spotify’s valuation doesn’t technically change with the debt round, one of its mutual-fund investors has marked down its stake. Fidelity Investments held its Spotify shares at USD 1,643 a share in January, down 27 percent from August, according to regulatory filings. Vanguard International Growth, paid USD 2,229 a share for a stake in Spotify and still held it at that price as of December.
Before raising the convertible debt, Spotify had more than USD 600 million left on its balance sheet, a source familiar with the company said. It has previously raised a total of more than $1 billion from investors including Founders Fund, Accel Partners, Technology Crossover Ventures and Kleiner Perkins Caufield & Byers.
