A few weeks after reports surfaced that SoundCloud was running out of money and heading toward a potential sale, the music-sharing platform has reportedly secured $70 million in debt financing. Ares Capital, Kreos Capital and Davidson Technology lent SoundCloud the much-needed funds, per a statement the company provided to Business Insider.
SoundCloud, which offers a music streaming service through its website and iPhone & Android apps, allows artists to upload their own content and share it on the platform. The Berlin-based company has had difficulties competing with similar services such as Spotify and Apple Music over the last several years, with its financial struggles often making headlines.
CEO Alexander Ljung
Founded in 2007, SoundCloud raised north of $100 million in equity funding over its first six years and was valued at roughly $564 million in 2013 with a $67.5 million round. Signs of the company’s financial woes began to surface in 2014, when Twitter walked away from talks to acquire the music service (although the social media company did eventually invest $70 million two years after the failed acquisition). In 2015, SoundCloud raised its first round of debt financing, a $35 million facility from Tennenbaum Capital Partners.
About half a year ago, SoundCloud’s backers—which include GGV Capital, Index Ventures and IVP—started to perk up when evidence emerged that the company was once again looking for a buyer. First, the company brought on Holly Lim as its first CFO in September 2016. Later that same month, reports surfaced that Spotify was in talks to purchase its fellow music-streaming company. But in December, Spotify decided against the acquisition, reportedly because it was prioritizing a possible 2017 public offering.
Since that potential acquisition stalled, rumors of SoundCloud’s financial difficulties have ramped up. Earlier this month, Recode reported that the company would consider bids for around $250 million, a price tag that’s about one-third its most recent valuation. SoundCloud also tried to raise more than $100 million in equity funding last summer without much success, according to the same report.
The debt round will keep the company afloat for a bit, but backers are likely wondering what sort of timeline they’re looking at for seeing a return on their investments. And as both Dan Primack and Fred Wilson recently pointed out, using debt as growth equity comes with its own special type of risk. If a company is unable to achieve the type of growth they envisioned, the debt can be called and the company may be forced to accept less than ideal exit terms.
Interested in learning more about SoundCloud? Check out its free profile to get a look at its investors, funding history, management and more.
Article by Dana Olsen, PitchBook