Music streaming service Spotify, is looking to debut its direct share offering without raising new money from public exchanges.
Spotify Is Considering Going Public Without An Actual IPO
Earlier this year, Spotify surpassed the 50 million mark of paying subscribers. The company says it does not have an immediate need to raise capital but wants to make it possible for its employees and investors to cash out.
Listing its shares directly on public exchanges would allow Spotify to address these issues so that investors can buy Spotify from current shareholders on the open market.
This method is different from the traditional IPO taken by most tech start-ups that are looking to go public and raise money.
Daniel Ek and Martin Lorentzon founded Spotify a decade ago and two years ago raised $1 billion in debt, around the same time the company reported that it had surpassed $2 billion in revenues.
Spotify is keen on getting rid of the debt, which is a convertible loan that will end up costing more money if the company does not go public soon.
It is still not clear whether such a direct public offering sits well with the conditions appended to the loan.
The music streaming company has so far not reported its 2016 financial results. The company was however valued at $8.5 billion at the time it was taking out its loan.
Key investors in Spotify include Accel, Goldman Sachs Group, TPG, TCV and Founders Fund.
Traditional IPOs involve a company offering stocks to new investors the night prior to making them available on the public exchanges at a price that underwriters determine. The aim of such a public offering is to raise new capital that would aid in expanding the company.
On the other hand, with a direct listing, Spotify would not involve underwriters or raise money. Instead, it would help the company avoid many of the demands and costs of an IPO without devaluing the existing shares.
If successful, other start-ups that are not too keen with the traditional IPO route may opt for a direct listing instead.
Spotify had indeed planned to go public this year and it probably could. However, the costs involved could see the company delay its IPO.
The music streaming service has not recorded any profits yet mostly because a large portion of its sales go to the rights holders and record labels that own the songs on Spotify.
Earlier in the week, Spotify entered a long-term deal with Universal Music Group, the world’s largest label. The deal is expected to provide Spotify some relief.
The company is still negotiating longer deals with Warner Music Group Corp and Sony Music Entertainment, two other major labels.