Spotify Could be Raising $220 Million in Funding, Valuing Them at $4 Billion

By: Kuljit Grewal  |   June 19th, 2012   |   Business, News, Social Media

According to several sources (including The New York Times), Swedish music service Spotify could be raising up to $220M in a new round of funding led by large investment bank Goldman Sachs, who would foot 50% of that total. Although the deal is highly hush hush at this point, Spotify seems to still be in talks with other prominent venture capital firms, meaning that the total funding in question could change moving forward.

 

Following an impressive $100M raise last year, the money being thrown Spotify’s way could value the company at $4 billion, making it another member of the growing billion dollar tech club that has commenced since Facebook’s acquisition of Instagr.am and their subsequent IPO last month.  The club may also include newly minted Pinterest, a rapidly growing photo sharing website that has seen itself rise to prominence and be justified in doing so thanks to a recent $100M raise from Japanese retail firm Rakuten and several heavy hitting VCs. At that level of financing, Pinterest would be worth a cool $1.5 billion.

 

The common thread among all the aforementioned companies is their social element, which is further intensified by the fact that they all rely heavily on Facebook and its social reach to acquire and maintain their ever-growing client bases. For example, Spotify, which was founded in Sweden in 2006 and gained some steam throughout Europe since, was not made available in the U.S. until last year. This was due in large part to some snags in negotiating with several recording labels regarding profit sharing and rights. Since that time however, the service has grown rapidly, thanks in large part to its integration into Facebook, which allows users to share their playlists with friends.

 

Spotify is one of many companies that rely on a subscription based freemium model, allowing users to access a limited stream of digital music from the record labels and artists that they have agreements with. The content is ad-supported for all free users, while those who elect to pay for their subscription can stream their content ad-free based on a tiered fee system.

 

Although we are more than happy for entrepreneurs as their companies reach these astronomical valuations, it is difficult to understand how companies are reaching these figures without posting profits or possessing the profit models to do so. Spotify for example, showed a net loss of $60M last year as they grew internationally, and will most likely find themselves in the red once again this year despite a projected revenue total of $889M. We do not blame the cautious among our readers if flashes of “tech bubble 2.0” come popping into their heads.