Spotify Raises $1 Billion In Convertible Debt: Now What?

The company also indicated it will have an IPO in the next two years.

Spotify Raises $1 Billion In Convertible Debt: Now What?
[Photo: Flickr user Beau Giles]

Music streaming service Spotify has raised $1 billion in convertible debt, the Wall Street Journal reports. The deal will give Spotify cash to keep running its business and paying the bills as it faces ever-more-fierce competition from the likes of Apple Music, Tidal, and Pandora.

The $1 billion debt deal comes from private-equity firm TPG, hedge fund Dragoneer Investment Group, and clients of Goldman Sachs, the Journal reports. TPG has previously invested in other hot tech companies including Uber and Airbnb. Before the convertible debt deal, Spotify was valued at $8.5 billion as recently as June 2015.

What else can it do with all that extra money? Go deeper into video, speculates Re/code‘s Peter Kafka. Currently, it offers some clips from Comedy Central, Vice, and the BBC but it could start spending a lot more if it chooses to go in that direction.

The Journal notes that Spotify and other tech companies are turning to convertible debt deals, which are bonds that can later be exchanged for stock, in lieu of equity deals because it allows for a possible higher price for the stock when the company eventually IPOs.

Spotify’s debt deal comes with some strict guarantees, the Journal says. If it holds an IPO next year TPG and the other investors involved in the debt deal will be able to convert their debt into equity at a 20% discount and after a year that discount increased by 2.5% every six months. TPG and Dragoneer are also allowed to cash out their stock 90 days after an IPO instead of the normal 180 days other investors and employees would need to wait.

Sources told the Journal that Spotify has indicated to the new investors that they will go public within the next two years.

Related: Can Apple Music Kill Spotify?

About the author

Michael Grothaus is a novelist, freelance journalist, and former screenwriter represented worldwide by The Hanbury Literary Agency. His debut novel EPIPHANY JONES is out now from Orenda Books.