When Spotify started out, it took $1 billion in seed capital from Wall Street. As most of those arrangements go, 11 years later Spotify CEO Daniel Ek is racing to a place where he can rely less on those investors……and instead rely more on you and me.
Companies go public for one reason; to raise money. By giving Joe Public a chance to pull a $20 dollar bill out of his pocket and proudly become part owner, a well-orchestrated public offering normally creates billions of new, long-awaited dollars for the company’s leader to take the company to the next level (more R&D, more advertising, etc).
99% of the time, public offerings are underwritten by a major investment bank such as Goldman Sachs or Morgan Stanley. The banks handle the paperwork, generate PR and liaison with the Securities & Exchange Commission. In exchange for all this, they get 7% of the action.
But after years of being held hostage by the major record labels (which is actually good for artists), Ek is clearly not in the mood to be held hostage by Wall Street. He’s also not in the mood to see his initial investors get a bigger cut, which they will get if Spotify’s IPO (Initial Public Offering) occurs after 2017.
In a ground-breaking move, Ek is tentatively planning to NOT use an investment bank to underwrite the IPO. Instead he’s going to do a “direct listing” and let the market do whatever it wants to do. No interference from big banks. That’s like Willie Nelson working directly with the IRS without getting help from accountants.
Why does Ek think he can get away with this? For the same reason Donald Trump knew he could win the Republican nomination without spending a penny on advertising……he’s already famous. It’s funny to imagine Goldman Sach’s PR team trying to advise Spotify on how to become more well-known (“Have you considered a darker shade of green in the logo, Mr. Ek?”).
I recently hosted a podcast for Atlanta-based technology company Shofur and explained that if you’re a person who feels compelled to dedicate part of your personal investment portfolio to music, Spotify will be one of your best bets. There aren’t many “pure plays” on the NYSE where your dollars will go more directly to artists. I can say that with a clear conscious because artists have already ensured they will always get their fair share from Spotify steams. Ek was brilliantly outmaneuvered by SoundExchange (more on that here) years ago. That battle has been won.
So with that behind us, let’s all feel proud of Spotify for sticking it to Wall Street. It’s so rock ‘n roll.
Mike Bielenberg is a professional musician and co-founder of http://www.musicrevolution.com, a production music marketplace with over 48,000 tracks online where media producers, video producers, filmmakers, game developers, businesses and other music buyers can license high-quality, affordable royalty-free music from an online community of musicians. email@example.com.