Founder and CEO Daniel Ek published a statement on the Spotify blog yesterday, detailing his explanation for the rare manner of going public, his hopes for the company and words of inspiration likely to buoy the interest of potential investors.
“[Our] focus isn’t on the initial splash. Instead, we will be working on trying to build, plan, and imagine for the long term.”
The traditional method of going public is called an Initial Public Offering, or IPO. In an IPO, a company actually creates more shares in order to sell them to raise money. This deal is brokered or underwritten by a number of banks, which helps maintain some price stability on the opening day. With what Spotify is doing, a direct listing, no new shares are created and therefore no new money is raised for the company. It just means that all the existing shares held by investors (in Spotify’s case: executives, employees, large music labels etc) can now be traded on the public markets. In an extreme example, literally no shares could be sold on the first day if no existing shareholders want to divest.
Facebook, a tech company that also had no positive income, pursued an IPO and was mired in controversy after a volatile day of trading. Early in 2018, Dropbox also pursued and IPO to great success. Spotify’s method, while rarely used, does not have any specific advantages or disadvantages. It just means that there will be more uncertainty with the price being completely set by the market.
While going public is certainly something to celebrate, Ek says what is “important to [him] is that tomorrow does not become the most important day for Spotify.” He wishes for the company to continue operations as usual, and for the event to simply be another stepping stone to success.
Currently Spotify is under the shadow of a $1.6B lawsuit from Wixen Music Publishing, and has come under fire from artists and critics about the way it conducts business. Gareth Emery, who has personal interest in his own streaming platform Choon, criticizes Spotify for saying it is for the artists. He states that with millions of subscribers and billions of streams, he still couldn’t make a living off the platform. Ek has always said that his intentions are to provide a place for artists to make a living off their art, a contradiction to current artist experience and something the company will hopefully address going forward.