Will Venture Investors Look To Music Tech Startups For IPOs?

Photo by Heidi Sandstrom. on Unsplash

Will Venture Investors Look To Music Tech Startups For IPOs?

Just recently, Spotify, the global music streaming service, just filed the paperwork to list its share for public sale. This unusual method is called a direct listing, which will benefit a number of Spotify’s investors and executives. Thanks to its Initial Public Offering (IPO) with the SEC, Spotify shares opened their reference price at $165.9 a piece with $29.5 billion valuations. This kind of deal will provide liquidity for investors by going public and without raising new funds. So what does this mean for investors? One thing’s for certain, this music startup trend is heading towards profitability.

Spotify’s first investor

According to Pär-Jörgen Pärson, a general partner at Northzone, he was first skeptical of Spotify’s desire to go improve the studio music industry, after already having invested in two failed music tech startups. However, it wasn’t until co-founders Daniel Ek and Martin Lorentzon had convinced him to consider a new business model. As a result, Pärson took a change on the small Swedish startup, which has now welcomed a historic IPO last April 3. Not to mention – this unusual move comes with some benefits including no roadshow, banks, fees and lock-up period.

The gap between music tech startups and venture capitalists

Just days after Spotify’s public listing, Sonos also began to look for a corporate controller with current and previous experience at publicly-traded brands. In fact, Sonos’ CEO, Patrick Spence, considered whether an IPO would be best for the organization, adding that his company was growing and building profit. This is just one of the many startups that are looking into the possibility of IPO.

  • Jawbone, the award-winning consumer hardware firm was previously valued at $3 billion, is officially going out of business.
  • SoundCloud, who reported a $1 billion in 2016, laid off 40% of its workforce due to a long-term desire to be in control of the company’s independent future.  
  • Tencent Music, presently valued at $12 billion after a mutual equity-investment deal in December 2017.
  • More recently, Qobuz, Europe’s hi-fi music streaming service has yet to launch in the United States but also announced that the company is considering going public within the next five years.

 

While the sudden rise of companies continuing to eye their options, IPOs are not necessary for everyone as many music tech startups have discovered the hard way. Whenever a market leader in a product category IPO, it’s normal for their competitors to rush towards town own public listing within 24 months.

With Spotify’s market value of over $25 billion, it’s safe to say that Silicon Valley and Wall Street are warming up to the notion. Today, music-streaming services are not only thriving but also encouraging founders to build better tech solutions. For venture-backed tech companies, the question to leave or not is still present as ever as investors see the conditions for public startups with high-growth and low-interest rates. Not to mention, this outlook on the tech industry is also helping music tech companies like Pandora to rise as a potential platform than it was last year.

 

Chrissy Kyle

VCO Contributor

2018-07-25T11:57:51+00:00 July 25th, 2018|