Business Matters: A $3 Billion Valuation Brings Spotify Expectations Back to Earth
Business Matters: A $3 Billion Valuation Brings Spotify Expectations Back to Earth

Spotify is close to wrapping up a $100 million round of funding at a valuation of $3 billion as it prepares for expansion into Latin America and expanding further across Europe in 2013.

The latest round of funding, confirmed by a source familiar with the company's plans, is at a valuation level that falls significantly short of previous reports of $4 billion. The digital music streaming market leader is expected to close imminently within the next week or two with several investors including Goldman Sachs, according to the source. News of the funding and Goldman Sachs' involvement was first reported by the Wall Street Journal.

Spotify, founded by entrepreneur Daniel Ek in his native Sweden just six years ago, said late in July that it has 15 million active users and 4 million paying users. One million of those paying users are in the United States. But the start-up, which is expected to generate around $900 million in revenue this year, is not expected to turn a profit anytime soon.

Ek said in recent interviews that he is especially focused on aggressively growing Spotify around the world before worrying about whether his company will issue a public offering or seek a buyer. To that end, the company is currently advertising for key staff in new markets like Mexico City and Poland.

In June 2011, the start-up raised $100 million at a valuation of $1 billion from investors including Silicon Valley venture capital heavyweights Kleiner Perkins Caufield & Byers and Accel Partners along with Russian investment firm DST Global.

Despite doubts in some parts of the music business around the validity of the monthly all-you-can-eat subscription model for streaming songs, technology investors have been keen to make a bet on the start-ups.

Paris-based song streaming service Deezer raised $130 million last month in a round led by Warner Music Group's owner Access Industries and previous investor Idinvest. Deezer is expected to use its fund to continue with its push into many smaller music markets before it turns its sights on the United States.

However, given the troubled tech public offerings of Facebook and Zynga the last six months investors have become more cautious about ballooning valuations, and this would have weakened Spotify's hand in negotiating the higher valuation it had originally signaled.