Spotify Raises $250 Million To Become One Of The Richest Startups

Online music streaming service Spotify has secured $250 million through financing to become one of the richest capitalized start-ups. With the added finance, the Swedish Music service has reached the valuation of $4 billion, according to Wall Street Journal. Last year, the company secured $100 million from investors including Goldman Sachs.

Spotify may expand in other regions

Technology Crossover Ventures, which is a venture capital firm in Silicon Valley, lead the funding process, says a report from Reuters citing a source familiar with the information. The fund will help the music company to escalate its business in the United States outpacing competitors like Pandora, and could also expand into the other geographies like Japan.

Other start-ups that raised more than $400 million include daily deals site Living Social, online bulletin board Pinterest and online survey tool Survey Monkey.

With surging popularity of smartphones, streaming and on-demand music have also gained considerable traction.  However, services like Spotify and Pandora Media Inc (P) have a huge subscriber base of around 68 million combined, but failed to earn profit due to cost of royalty fees. Recently, Apple Inc. (AAPL) launched its own iTunes Radio product similar to that of Pandora and Spotify.

Making efforts to turn profitable

Spotify, started in year 2008, enters into the deal with record labels paying around 70% of the revenue earned to these labels. At present, user base of Spotify is 24 million, out of which 6 million have subscribed to premium service, according to spokeswoman Alison Bonny. The streaming service is available in 32 countries. However, the spokeswoman turned down to comment on the funding.

Revenue for Spotify came in at 435 million euros or $571 million in 2012, which was two times more than the previous year’s revenue. The start-up logged in a loss of 58.7 million euros compared to 45.4 million in last year, according to corporate filings in Luxembourg, in July.

Major source of revenue for Spotify are its premium package subscribers who total 6 million, and pay up to a $10 per month. Rest of the revenue is earned from the advertisers.

Spotify Chief Executive and co-founder Daniel Ek stated that Spotify is working to convert the free users into the paying subscribers. He said that the company has also brought down the royalty fees to be paid to record labels, artists and publishers.