Technology Crossover Ventures is making its biggest bet (ever/in years) by backing the entirety of Spotify new $250 million round, a source tells TechCrunch. The Wall Street Journal’s report of Spotify raising the round at a valuation above $4 billion is right, and it will fuel Spotify’s push to become the defacto streaming music service around the world, our source says.
This is likely TCV’s biggest investment ever. It joined a crowd of VCs in Groupon’s $950 million round in 2011, and led a few other firms into Homeaway’s $250 mllion Series E in 2008. While it used to do more early stage deals, TCV has been focused around the Series C and D phase of startups’ lifecycles, with recent participation in $40 million rounds for Minted and JustFab.
Our source says TCV stepped up with Spotify. It didn’t even just lead this Spotify financing as the WSJ wrote in its scoop. It put up all the money. The round could be called Spotify’s Series F and brings the company to $538 million in total funding. It follows the $100 million round in 2012 led by Goldman Sachs, and that sources say included Fidelity Ventures and Coca-Cola.
That came after Spotify’s previous $100 million venture round in 2011 from Kleiner Perkins Caufield & Byers, Accel Partners, and Digital Sky Technologies.
TCV is apparently willing to bet big on Spotify either getting acquired or having a successful IPO. At this point, Spotify is getting too expensive for most companies to buy. Unless perhaps Apple or Google acquire it to bolster their own music streaming offerings, Spotify will have to IPO.
In the case it goes public, it will have to prove to investors that its upside isn’t shackled by the huge content licensing fees it pays to the record labels. Luckily, it will have help from TCV, who has $200 million in Netflix — a company also in the wheeling-and-dealing content distribution business.
Spotify seems to be doing better than some competitors. Rdio just had a sizable round of layoffs, and I haven’t heard many people excited about Google’s All-Access music service. However, Spotify needs to be careful of Apple’s iTunes Radio which is free and comes bundled into the music app pre-installed on all iPhones, as well as European service Deezer.
Spotify grew past €400 million in 2012, but still has significant losses due to the big fees it pays record labels for music and its international expansion efforts. The TCV money could pay for the latter.
In the short term, Spotify has to fend off competition from both startups and deep-pocketed smartphone platform owners, and therefore needs marketing capital.
Looking farther to the future, the logic seems to be that music is a critical part of the mobile user experience. As more people around the world upgrade to smartphones and gain access to faster networks, Spotify expects demand for streaming music to grow. It needs to have strong local mindshare as that transition happens to lock in new ad-supported users and lucrative paying subscribers.
Spotify built a way to put almost every song at our fingertips. Now it’s a matter of trumpeting the magic of on-demand music around the globe.