UPDATED 03:48 EST / MARCH 30 2016

6791944460_29588ec823_b NEWS

Spotify raises $1b in convertible debt as it attempts to strengthen its war chest

Music streaming provider Spotify AB has raised $1 billion in convertible debt from TPG Capital and Dragoneer Investment Group.

According to reports, the deal comes with some strict guarantees, including TPG and Drogoneer being able to convert the debt to equity at a 20 percent discount of whatever price set when the company presents its initial public offering (IPO) if Spotify doesn’t meet certain performance targets.

In the event that Spotify doesn’t go public within twelve months the 20 percent discount grows 2.5 percent every six months until such it does, and once TPG and Dragoneer obtain those shares they are able to sell them after 90 days of the float instead of having to wait for the lockup period of 180 days for Spotify employees and investors ending.

The debt itself has a five percent annual interest rate, increasing one percent every six months to a maximum amount of 10 percent.

War chest

Spotify confirmed the deal, saying in a statement that the financing gives them “the strategic resources to further strengthen their leadership position,” or in laymen’s terms a war chest going forward.

The company’s last round was $526 million Series G on a $8.53 billion valuation in June 2015, and while there were reports in January they were looking to raise $500 million via convertible debt it’s not clear whether that amount was raised, or the $1 billion we are seeing today is the result of those attempts.

Using a convertible note, even with tight restrictions, makes a lot of sense for Spotify both going forward and in this market; it would have been a bad look for Spotify to raise a traditional equity round on a lower valuation than it’s last round, and increasing common occurrence for late stage startups in 2016.

Also having undertaking multiple rounds already raising yet another equity round would have further diluted the holdings of existing investors in a year Spotify will likely go public whereas the deal gives Spotify the advantage of obtaining the extra money without (be it if they meet the debt’s requirement) the need to dilute the holdings of existing investors.

Including the convertible debt Spotify has raised at least $2 billion to date (some previous rounds were not disclosed) and has investors including AFSquare, The Coca-Cola Company, Fidelity Ventures, Lakestar, DST Global, Kleiner Perkins, Caufield & Byers, Accel Partners, Sean Parker, Baillie Gifford, Landsdowne Partners, Rinkelberg, Senvest Capital, Discovery Capital Management, Goldman Sachs, Halcyon Asset Management, GSV Capital, D.E. Shaw & Co., Technology Crossover Ventures, Northzone, P. Schoenfeld Asset Management and TeliaSonera.

Image credit: thestudios38/Flickr/CC by 2.0

Since you’re here …

Show your support for our mission with our one-click subscription to our YouTube channel (below). The more subscribers we have, the more YouTube will suggest relevant enterprise and emerging technology content to you. Thanks!

Support our mission:    >>>>>>  SUBSCRIBE NOW >>>>>>  to our YouTube channel.

… We’d also like to tell you about our mission and how you can help us fulfill it. SiliconANGLE Media Inc.’s business model is based on the intrinsic value of the content, not advertising. Unlike many online publications, we don’t have a paywall or run banner advertising, because we want to keep our journalism open, without influence or the need to chase traffic.The journalism, reporting and commentary on SiliconANGLE — along with live, unscripted video from our Silicon Valley studio and globe-trotting video teams at theCUBE — take a lot of hard work, time and money. Keeping the quality high requires the support of sponsors who are aligned with our vision of ad-free journalism content.

If you like the reporting, video interviews and other ad-free content here, please take a moment to check out a sample of the video content supported by our sponsors, tweet your support, and keep coming back to SiliconANGLE.