Spotify raises $1B in debt with devilish terms to fight Apple Music • Hacker News Board

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

#81

Post by Negative1 » Wed, Mar 30, 2016, 2:27 AM UTC

themartorana wrote: post #38

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.

It helps that Apple Music has been relatively terrible from the start. I fully expect them to get significantly better, but after Rdio died (RIP, and I got over my mourning) I did the Apple Music trial plus a couple months. Both the wife and I found it incredibly difficult to navigate and understand. Spotify has been much, much better. That said, Apple Music is only going to get better, and fast.

It helps but not as much as you'd think. Lots of great/superior products have failed in the past. Waiting for your competition to fail is a great way to go out of business.

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

#82

Post by knoble » Wed, Mar 30, 2016, 2:28 AM UTC

chvid wrote: post #48

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…

Would it not be possible for an employee to hedge/short-sell the stock using i.e an option?

Mark Cuban did this when selling broadcast.com to Yahoo. It's a pretty amazing hedge: http://investmentxyz.blogspot.com/2006/05/cubans-collar-anat...

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

#83

Post by Trundle » Wed, Mar 30, 2016, 2:29 AM UTC

jacquesm wrote: post #25

jvm wrote: post #19

Earlier quoted context omitted.

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 mak…

I don't understand where you're saying that employees aren't also going for a home run or bust outcome. That's exactly what they signed up for when they took that job instead of with a more established company.

"Bust" is the most likely outcome when you sign up to work for a startup, so unless their goals/wants have changed I don't see why they'd want to jump ship now.

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

#84

Post by jacquesm » Wed, Mar 30, 2016, 2:41 AM UTC

Trundle wrote: post #83

jacquesm wrote: post #25

Earlier quoted context omitted.

> 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 mak…

I don't understand where you're saying that employees aren't also going for a home run or bust outcome. That's exactly what they signed up for when they took that job instead of with a more established company. "Bust" is the most likely outcome when you sign up to work for a startup, so unless their goals/wants have changed I don't see why they'd want to jump ship now.

The Spotify that raised it's initial round has a completely different risk profile than the Spotify that exists today.

Employees as a rule are not looking at the company in the same way that investors and founders do. If you have evidence that employees as a rule understand the amount of risk involved and that they understand fully that the most likely value of their stock options is zero then I'm definitely all ears. But that's usually not how it's being sold.

In fact, it is sold along the lines of 'we're not going to pay you your market rate but you have quite a bit of stock (in reality .000001% (or some other rounding error)) if you work really hard for the next 4 years YOU TOO WILL BE RICH. But the number of employees that actually do end up like this is small. Still larger than the number of founders but the founders really will be rich, the employees are lucky if they make up for their lost income.

Of course some employees will be more savvy than others and will negotiate a wage that reflects the reality of start-up life but more often than not the employees accept (substantially) below market wages in return for a bunch of empty promise. Feel free to blame them for not being informed, but to claim they have 'the same incentives' is definitely not the case in my experience.

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

#85

Post by nissimk » Wed, Mar 30, 2016, 2:45 AM UTC

hkmurakami wrote: post #58

owenversteeg wrote: post #10

Jesus Christ, that's not clickbait, those really are devilish terms. It's debt, they lose $200MM of shares at the time of IPO, and they very well could end up paying 15% interest yearly on this. And when the IPO happens, if it follows the general IPO trend and tanks at first, it's very possible TPG and Dragoneer will want to get out -- dumping 1.2 billion of Spotify onto the market and absolutely destroying the share…

>Spotify also has to pay 5% annual interest on the debt, and 1% more every six months up to a total of 10%. Fwiw I'm parsing this as the interest to service the debt topping out at 10% rather than 15% (which imo is a pretty big difference)

They can probably pay in kind and screw the investors more. Better than paying cash.

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

#86

Post by rdli » Wed, Mar 30, 2016, 2:45 AM UTC

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?

Early employees always get diluted. That's what happens when you raise additional capital, regardless of structure.

They make up for this with a combination of a lower exercise price, the vesting clock starting earlier, and typically a larger grant for earlier employees.

Companies retain employees by giving additional refresh grants and/or raises.

I'm not sure why it's OK for Uber to raise a few billion $ and there isn't a fuss about how that's hurting employees when it's not okay here. They both are getting diluted.

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

#87

Post by rdli » Wed, Mar 30, 2016, 2:46 AM UTC

wildmusings wrote: post #59

> By raising debt rather than equity, it doesn’t have to worry about poor signaling from a down-round raised at a lower valuation than the $8.5 billion it set in June 2015. How is the signaling from this any better? It still plainly reveals that the previous valuation is not representative of reality. The only difference is that we don't have another imaginary number to outright replace it with. And can we all agree…

There is no valuation in this round. There is no cap. It's just a discount off of a valuation in the future. I would imagine the conversation was "the market is gyrating so much we can't agree on value" so let's defer the valuation until later, and we'll give the investors a 20% (and possibly larger) discount once the public markets establish a valuation.

I don't see a signaling issue here.

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

#88

Post by spriggan3 » Wed, Mar 30, 2016, 2:47 AM UTC

philliphaydon wrote: post #50

Spotify waste so much money on their employees, who effectively do very little. I know a designer who has been there 2 years, basically sits in meetings and gets sent to different countries, and has added nothing to their portfolio. Yet gets reviews and raises and bonuses... Then there's all the parties they host for their employees, etc. It's not a company I would invest in if I had any money to begin with. Also tha…

> Spotify waste so much money on their employees, who effectively do very little

Plenty of businesses waste money on some employees who effectively do very little, like diversity officers, equality consultants and such useless positions ... The problem isn't them , the problem here is Spotify unstustainable business model, period. They will go down, sooner or later. The fact that they had to take a loan means they can't raise money through VC rounds anymore. It's clearly the end of an era for a LOT of startups. And that's fine. It's call redistributing cards.

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

#89

Post by stakecounter » Wed, Mar 30, 2016, 2:53 AM UTC

criley2 wrote: post #56

philliphaydon wrote: post #50

Spotify waste so much money on their employees, who effectively do very little. I know a designer who has been there 2 years, basically sits in meetings and gets sent to different countries, and has added nothing to their portfolio. Yet gets reviews and raises and bonuses... Then there's all the parties they host for their employees, etc. It's not a company I would invest in if I had any money to begin with. Also tha…

The modern desktop app is at a point where it's pretty solid, but I still miss that old 0.80.x branch or whatever the final non-chromium verison was. But you know what? Google doesn't have a desktop app for Google Music. Amazon doesn't have a desktop app for Amazon Prime. Apple doesn't have a desktop version... so yeah, despite the fact that Spotify's only-one-in-the-business desktop app isn't perfect, it does exist.…

Amazon Music has a desktop client: http://www.amazon.com/gp/feature.html/?ie=UTF8&docId=1001067...

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

#90

Post by unfletch » Wed, Mar 30, 2016, 2:57 AM UTC

beatpanda wrote: post #75

It's going to be a huge bummer if Spotify goes out of business -- I pay for Spotify Premium, I absolutely love it, and their clients for Linux and Android are fantastic. I have a strong suspicion that Apple is not going to let me listen to music on the devices I own.

> I have a strong suspicion that Apple is not going to let me listen to music on the devices I own.

You're probably right about any Linux devices, but there's an official Apple Music app for Android you can install right now: https://play.google.com/store/apps/details?id=com.apple.andr...