[JonFish85]

Isn't the point of an IPO generally to raise funds? In this case, it's just allowing people to sell their shares to the public, right? From the company standpoint, this is almost certainly a negative: additional oversight & reporting to do, no funds raised. I guess a positive is that shareholders can cash out, but as an investor, isn't that a giant red flag?

I guess as an investor, I don't see why I'd buy Spotify shares from an existing shareholder -- my "investment" is not going to the company, it's a bit like buying shares on the market of a mature company, except Spotify isn't that -- it's a money-hole with a highly questionable future. Is there any reason for someone to buy existing shares to expect things to turn around? They aren't getting a capital infusion, it's business as usual except with the additional burden of being a public company.

[oli5679]

One advantage a new investor has over someone who provided Spotify with Seed/Series A is greater diversification. Suppose I'm a VC that invested in Spotify, it succeeded and my 20 other seed investments all failed. My retirement wealth is entirely dependent on it's success in the future - your comment outlines why this is risky. Since I am risk averse, I can sell this to a pension fund who will keep it as 1% of their total holdings and we can both be better off, even if we have the same view of the company's likely success in the future.

Of course, if everyone has too optimistic a view on Spotify's future success (could well be the case, I don't have an informed opinion) then buying the stock is a bad idea. But there is not necessarily anything sinister going on when founders/early investors cash out. From Spotify's point of view, they have an inventive to keep these people happy, balanced against the greater regulatory/oversight costs that you highlight.

[kingraoul3]

That can be accomplished with private market tenders though.

[Eridrus]

I don't see how this is a negative signaling issue. When you buy Apple Stock it's not from Apple.

Spotify is going public largely due to terms they agreed to in previous funding rounds, but they are probably not raising money because they either don't need it or believe they can get better funding terms.

If anything, this should be a signal that the company thinks the public stock is under-priced.

[bogomipz]

>"When you buy Apple Stock it's not from Apple."

How are these two comparable? When Apple IPO'd back in 1980 you were buying stock from Apple.

>"...but they are probably not raising money because they either don't need it or believe they can get better funding terms."

They lose hundreds of millions of dollars year over year, why would they not need it? Also why would they believe that they can get better funding now when they resorted to selling debt with unfavorable term intheir last round of financing?

[supster]

An IPO provides 1) a fundraising opportunity 2) a liquidity event 3) an opportunity to fulfill contractual obligations

One of the conditions of their recent debt financing was that they IPO within a certain time frame. If they believe that they don't need additional funding at the moment or can get better terms then they are simply fulfilling criteria #2 and #3 with their unique IPO. I imagine Spotify can get decent debt financing terms b/c they have such a steady and predictable source of revenue (though not necessarily profit).

[JumpCrisscross]

> One of the conditions of their recent debt financing was that they IPO within a certain time frame

Spotify is not IPO’ing. They are direct listing their stock. Because of a simple drafting error on part of TPG et al Spotify is side-stepping the bulk of the delayed IPO penalties.

[iav]

This is exactly why they are direct listing. TPG is screaming bloody murder but then again they claim to be the masters of structuring complex deals so they can’t claim that a startup snuck in a loophole under them.

[bogomipz]

I'm aware of what an IPO provides.

>" I imagine Spotify can get decent debt financing terms b/c they have such a steady and predictable source of revenue (though not necessarily profit)."

Again if this true, why would they raise a billion dollars in convertible debt?

[Eridrus]

> Again if this true, why would they raise a billion dollars in convertible debt?

Because debt is often a better instrument?

[Eridrus]

> They lose hundreds of millions of dollars year over year, why would they not need it?

I have no comment on their actual business, just that I don't see them not selling shares as a negative signaling issue.

People would make the same arguments regardless of whether they were selling stock or not.

[fnordsensei]

The major record labels are shareholders in the company.

This allows them to cash out and then go sue Spotify for all the stuff they were previously lenient with.

They will no longer have vested interest in the company and no reason to protect it.

[semperdark]

Spotify is a European company, but in the US there are limits to the numbers of shareholders allowed in private companies. Something similar may apply here.

[tonfa]

Index funds might be forced to invest though.