Streaming audio company SoundCloud has closed a Series D funding round led by Institutional Venture Partners with participation by the Chernin Group, the investment firm founded by former News Corp. president Peter Chernin. The Berlin-based company provides a popular way for musicians to store, stream and share their music on the web and on mobile devices.
Although the company has not disclosed the amount of the funding, the Wall Street Journal reported SoundCloud raised more than $60 million at a valuation of roughly $700 million.
A SoundCloud spokesperson says the funding will be used “to grow more rapidly in product, personnel and expansion in mobile efforts.” The company has more than 200 employees and offices in Berlin, New York, San Francisco, London and Sofia, Bulgaria.
IVP was attracted to SoundCloud’s role as a leading digital platform in the growing streaming audio market. In a blog post, the firm calls SoundCloud “the Youtube of audio” and recognized its business is scaling quickly. SoundCloud is used in more than 200 countries. Its users upload 12 hours of audio every minute, and 90% of those tracks are played on the day they’re posted.
“We believe that this global reach, combined with very strong networks effects, will continue to expand and solidify SoundCloud’s position in online audio,” explained IVP.
The economics of SoundCloud are undoubtedly attractive to investors. Unlike Pandora and Spotify, which pay royalties for the use of recorded music, SoundCloud does not pay royalties to artists, songwriters, record labels or music publishers. A typical streaming service licenses recordings and generates revenue from advertising or subscription fees. That royalty burden ranges from 50% and 70% of revenue for SoundCloud’s competitors.
SoundCloud provides free streams to listeners and offers its users basic storage accounts and charges extra for additional storage space and features. When SoundCloud users upload audio, they grant the company a “worldwide, royalty-free, fully paid up” license that allows for royalty-free streaming.
The team behind SoundCloud also attracted IVP. The company’s previous investors include Union Square Ventures, Index Ventures, Kleiner Perkins Caufield & Byers, GGV Capital and Doughty Hanson Technology Ventures. SoundCloud has raised more than $123 million, according to CrunchBase.
Investors have recognized streaming, while financially challenging, has the potential to disrupt traditional media. Last year Billboard tracked nine investments in streaming audio or video companies worth $839 million.
The largest financing event was $393 million raised by Internet radio company Pandora from its secondary stock offering. The company currently has a market value of $6.5 billion. Spotify, the on-demand music subscription service, raised $250 million at a reported $4 billion valuation.
Both companies are leaders in their respective fields but not yet profitable.
