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Spotify raises $1B in debt with devilish terms to fight Apple Music

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Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#21

Post by jacquesm »

DanFeldman wrote: post #13

How can early employees defend themselves? What stock structures, if any, fight against this? Is there nothing possible common stock holders can do to protect themselves aside from pray the founders have some shred of morality?

You can't, really. This is one reason why I think the 'start-up' scene is statistically so-so for founders, potentially great for investors but not so good to outright bad for early employees except in a very few exceptional situations.

Everything has to work out just-so for employees to end up wealthy beyond making up for the lost pay and the overtime, assuming they even get that (most likely: nothing).

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#22

Post by joshjkim »

jvm wrote: post #19
DanFeldman wrote: post #13

How can early employees defend themselves? What stock structures, if any, fight against this? Is there nothing possible common stock holders can do to protect themselves aside from pray the founders have some shred of morality?

Note that the founders interests are aligned with the early employees, they are all taking an equal haircut. Either (a) the founders are sacrificing themselves for the sake of the company which means they were already in dire straits or (b) they actually believe that this will be a net positive for the value of common shares, e.g. by avoiding a down round. Well, actually, (c) the founders have lost their controlling…

True - probably, founders have no choice. One side note though: it's increasingly common for founder's to cash out a few million in later stage rounds, often under wraps, to "keep them from being tempted to take lower buyout offers" is the usual theory, which is code for getting them to be more aligned with the investors. In any case, those deals are often not accessible to employees, just founders.

The most cynical take is that the investors are buying them off to be not just more aligned with investors, but less aligned with employees =)

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#23

Post by jacquesm »

draw_down wrote: post #18
joshjkim wrote: post #2

"TPG and Dragoneer can sell their shares just 90 days after the IPO, before the 180-day lockup period ends for Spotify’s employees and other investors." Among many the bad terms disclosed in the article, IMO this is probably the worst - basically, this right is a license to cash out and torpedo the company within 3 months (just the right amount of time to see how the market reacts to Spotify's first earnings call as…

Surprise surprise, employees lose out again. But I guess they were already in danger of getting nothing if this is the deal management struck.

Management and early employee incentives are rarely aligned.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#24

Post by sk5t »

jvm wrote: post #19
DanFeldman wrote: post #13

How can early employees defend themselves? What stock structures, if any, fight against this? Is there nothing possible common stock holders can do to protect themselves aside from pray the founders have some shred of morality?

Note that the founders interests are aligned with the early employees, they are all taking an equal haircut. Either (a) the founders are sacrificing themselves for the sake of the company which means they were already in dire straits or (b) they actually believe that this will be a net positive for the value of common shares, e.g. by avoiding a down round. Well, actually, (c) the founders have lost their controlling…

Their interests are aligned, but early employees stand to take an even closer haircut on options--assuming significant strike price--rather than founder shares.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#25

Post by jacquesm »

jvm wrote: post #19
DanFeldman wrote: post #13

How can early employees defend themselves? What stock structures, if any, fight against this? Is there nothing possible common stock holders can do to protect themselves aside from pray the founders have some shred of morality?

Note that the founders interests are aligned with the early employees, they are all taking an equal haircut. Either (a) the founders are sacrificing themselves for the sake of the company which means they were already in dire straits or (b) they actually believe that this will be a net positive for the value of common shares, e.g. by avoiding a down round. Well, actually, (c) the founders have lost their controlling…

> Note that the founders interests are aligned with the early employees, they are all taking an equal haircut.

I disagree. The founders definitely have an important stake in the outcome but they stand to get very wealthy if it works out and early employees will - in most cases - make back a premium on the lower wages they took because of stock options (which you should never do) and the extra hours they put in to make the company a success.

Note that simply because of the asymmetry between the potential pay-out the goals are not aligned.

Superficially, yes, they are aligned because if the founders get nothing the employees will also get nothing but employee options are not the same as vested founder shares and employees could easily be 'under water' based on the value of their options being lower than the amount of money they left on the table by choosing this particular employer rather than a more established one.

So for founders the incentive to gamble is much higher (all-or-nothing), in fact I'd argue their goals are roughly the same as early (seed round) investors rather than early employees, once they decide to take on venture capital. The pressure will be on to go home-run-or-bust.

Note that the deal outlined above is exactly one of those. Conservative founders running a profitable business would not gamble like this, but since it doesn't matter any more the only way they will get anything out of this is the home-run and what's good for the employees is no longer relevant to the management that inked this deal (for employees it might actually be better to jump ship at this stage because the 'bust' scenario is a lot more likely with this much pressure than without).

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#26

Post by joshjkim »

deegles wrote: post #20
joshjkim wrote: post #4

Earlier quoted context omitted.

Oh, and I would not be surprised if Apple basically times major announcements re: Apple Music (subscriber numbers, if good, or new product features, etc.) around Spotify's IPO date and first earnings call to kill the pricing on both front - if I were Apple, I know I would =)

Why would Apple care about Spotify's stock price?

heh true, they might not care at all - Apple makes more $$ in a quarter than several Spotify market caps. But, here's a few theories: if Spotify keeps calling itself the "leader" in streaming and Apple decides it wants this to stop, it would be an easy/cheap way to impact Spotify's brand negatively, and even potentially bring them down entirely. Alternatively, by driving the price down, it could also force Spotify to explore selling itself at a low price (see: Pandora), and if Apple wanted some fast/easy subscribers, it could acquire them cheaply.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#27

Post by Matt3o12_ »

Maybe they should have added an Apple Watch app when the watch was released. I've paid for premium for over 2 years but switched when I got my watch because there was no app for Spotify (only third party apps that don't support offline listening and don't integrate very well either). Anyways, I'm now glad to have switch to Apple Music because they seem to have more content (at least more content I like) and their radio algorithm is way better. There are some major flaws with Apple Music but all in all, the experience is just better IMO.

If Spotify were to improve these issue maybe they could get more paying customers but these improvements should not cost $1B.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#28

Post by nerfhammer »

draw_down wrote: post #18
joshjkim wrote: post #2

"TPG and Dragoneer can sell their shares just 90 days after the IPO, before the 180-day lockup period ends for Spotify’s employees and other investors." Among many the bad terms disclosed in the article, IMO this is probably the worst - basically, this right is a license to cash out and torpedo the company within 3 months (just the right amount of time to see how the market reacts to Spotify's first earnings call as…

Surprise surprise, employees lose out again. But I guess they were already in danger of getting nothing if this is the deal management struck.

The glassdoor reviews seem to universally complain about poor stock compensation, so it seems they weren't getting much to start with.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#30

Post by dandelany »

acchow wrote: post #16
Negative1 wrote: post #15

This is significant. It shows a do or die attitude and a fact that many companies at this level are not self-aware enough to recognize; that their competition (Apple) will kill them, or, they will dominate this space. Will be interesting to see how this plays out.

What are the "many companies" under real threat by Apple? I think the set is fairly small?

Many companies are under real threat from their competition, Apple is just the example in this case. At least that's how I read it.
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