This Is Quite Possibly The Spotify Cap Table

Hot European music startup Spotify is back in the news today. On August 4 we broke the news that the big music labels have secretly been shareholders in the company since 2008, and that they paid roughly the same price for their preferred stock as venture capital investors Northzone Ventures and Creandum paid last year.

Now, though, Swedish news site ComputerSweden is reporting that those music labels actually got their stock for free. “Sony BMG, Universal Music, Warner Music, EMI and Merlin…bought at the time in to Spotify – for a pittance. They received 18 percent of the shares in Spotify barely 100 000 kronor,” (about €10,000) says the report. Metro Teknik has also picked up on the story.

We don’t believe that report is correct based on our sources that say that the labels paid roughly the same price as the venture investors for that stock.

And we have now obtained that unverified capitalization table information, reportedly based on a filing in Luxembourg where the company is headquartered, showing the various ownership positions of the major Spotify shareholders, including the prices paid for the stock.

We have reason to believe this is largely or completely accurate based on information it contains that we independently obtained from a separate source and have not previously published. With one exception – either the report inaccurately shows investments by labels as 1/1000 of their real amount (meaning three 0’s need to be added), or the report excludes most of these investment amounts.

Here’s the cap table:

Shareholders in Spotify on 10/7 2009
Bolag Andel
Rosello (Lorentzon) 28,6%
Instructus (Ek) 23,3%
Northzone Ventures 11,9%
Enzymix Systems (F. Hagnö) 5,8%
Sony BMG 5,8%
Universal Music 4,8%
Warner Music 3,8%
Wellington IV Tech 3,8%
Creandum II LP 3,5%
Swiftic (Strigéus) 2,6%
Creandum II KB 2,4%
EMI 1,9%
Merlin 1,0%
SBH Capital (B. Hagnö) 0,8%

Riskkapitalbolagens investeringar
Northzone 8 miljoner euro
Creandum 4 miljoner euro
Wellington 6,5 miljoner euro
Li Ka-shing 20 miljoner euro*

* enligt Financial Times
How much the labels paid for their shares.
Sony BMG – 2 935 euro för 6 procent av aktierna.
Universal Music – 2 446 euro för 5 procent av aktierna.
Warner Music – 1 957 euro för 4 procent av aktierna.
EMI – 980 euro för 2 procent av aktierna.
Merlin* – 490 euro 1 procent av aktierna.

This cap table shows founders Daniel Ek and Martin Lorentzon with 23.3% and 28.6% of the stock, respectively, for a total of 51.9% of the fully diluted stock of the company. The four big labels plus indie aggregator Merlin own a total of 17.3%, and paid an aggregate of €8.8 million for that stock.

Or, they paid €8,808 for that stock, which is what ComputerSweden is reporting.

Based on all previous information that we’ve received about the company from sources, including additional discussions with people close to the company this evening, the aggregate investment by labels was €8.8 million.

If the labels didn’t pay for the stock, all those previously sourced numbers are incorrect, which we think is highly unlikely.

The new round of financing, from Wellington Partners, Li Ka-Shing and additional strategic partners (Based on the cap table above, Spotify has already closed on the Wellington portion of that deal) will be $50 million or so, at valuation of $250 million (yes, I know I’m mixing currencies, but the numbers are all roughly working out). Most of that, or about €26.5 million, may be accounted for.

The key takeaway from this is that the founders have done an excellent job of raising a big bucket of money while retaining control of the company, and they are one of the very few music startups to actually get real cash from the labels.

My esteemed colleagues see some big holes in the Spotify story, but there is clearly a lot going right with this company, too. The real hurdle is making the model work, meaning they have to generate real advertising and premium revenues to offset big royalty streaming payments to the labels.