Spotify may be losing money as the leading streaming-music service, but it’s making money elsewhere.
The Swedish company is close to raising $1 billion in convertible debt from investors including private-equity firm TPG, hedge fund Dragoneer Investment Group and clients of Goldman Sachs Group Inc., the Wall Street Journal reported late Tuesday, citing unnamed people with knowledge of the deal.
TheWrap confirmed the report with a person familiar with the matter.
The deal, expected to close at the end of this week, carries guarantees protecting the investors should Spotify make good on its goal of an initial public offering of shares within the next two years, the report said.
Like many streaming-music services, Spotify is unprofitable despite the rapid growth in its sector among consumers. U.S. revenue from streamed music, especially the lucrative subscriptions where Spotify leads the world with 30 million members, surpassed sales from digital downloads last year. But the cost of music licenses to play those tunes gobbles up the lion’s share of the revenue Spotify and other services generate.
Spotify, which was last valued at $8.5 billion last June, is among a wildly expanded crop of companies known as unicorns, private tech businesses with valuations exceeding $1 billion. The term is meant to imply how rare such companies are, but the number of “unicorns” surged last year, as investors poured money into tech startups chasing big returns from IPOs.
But with markets unfriendly to risky new ventures and world economics uncertain, tech companies like Spotify have been turning to debt rounds to raise money instead.