SoundCloud survives after last-minute emergency investment, as CEO steps aside

After facing closure this week, the world’s largest audio sharing and streaming platform SoundCloud has been saved overnight.

Its investors agreed to a further US$170 million investment.

A ‘no’ vote would have seen the Berlin-based company terminated immediately or at the best by the end of the year.

The new investors are The Raine Group, the New York-based global merchant bank which owns the Lollapalooza festival, and the state-run Singapore investment company Temesek Holdings.

But as part of the deal, SoundCloud co-founder Alex Ljung will be replaced after ten years as CEO by former Vimeo CEO Kerry Trainor, but will remain with the company as Chairman.

Michael Weissman, one-time Chief Operating Officer at Vimeo, joins SoundCloud in the Chief Operating Officer role.

SoundCloud CTO and co-founder Eric Wahlforss moves to Chief Product Officer.

This is the new team now in charge of SoundCloud addressing its core problem – of turning its popularity as a free platform into a viable business model.

Over the years, the company burned through $230 million and is paying huge interest on $70 million worth of loans.

"This financing means SoundCloud remains strong, independent and here to stay," said Ljung in a statement.

Raine partner Fred Davis, who is joining the SoundCloud board with VP Joe Puthenveetil, said, “We see an incredible opportunity for growth in this business.

“[It] is a unique and essential music platform for new and developing artists.

“For ten years, SoundCloud has been the birthplace of genre-breaking musical movements in Electronica and Hip Hop.

“We are excited to partner with Temasek on this investment and are confident our involvement can ensure it remains the most artist-friendly music creation and streaming platform in the world.”

Trainor remains upbeat about SoundCloud’s future. “This is a great business, SoundCloud can do more,” he pointed out.

He added that it is on track to generate a revenue of $100 million in 2017.

SoundCloud certainly has potential to grow. It has 175 million active users (Spotify in June had 140 million) and has 160 million tracks. Despite its financial problems, it remains a strong brand where consumers could find new artists and listen to podcasts.

Last month, Ljung moved to cut operating costs by slashing its global staff force by 40% (or 173 people) and closed offices in Sydney, London and San Francisco. 

It freed up enough cash to last to the end of 2017.

Earlier this year, SoundCloud introduced a cheaper $5 subscription, which is half its original subscription and only offers some of its entire music catalogue. 

“They made the changes that needed to be made to get the cost and operations in line to take the business forward,” said Trainor.

He indicates the company will move away from streaming (it will still be offered) and refocus on its strength of selling tools for content creators.

SoundCloud already has a service called SoundCloud Pro where producers can upload their content for a fee, and be given analytical tools and information on the sort of people who are using their material. 

But Trainor is expected to introduce more effective strategies with the tool service as he created a similar service while at Vimeo.

Trainor, who left Vimeo 12 months ago after four years, has a digital background. 

Before Vimeo, he was SVP of Entertainment at AOL, CEO of digital publisher FlipGloss Media and Head of Global Media Products at Yahoo Music

The new funding round is not good news for its original financial backers. But they obviously agreed to it in the hope they might see some of their money returned.

SoundCloud is now valued at $150 million, compared to the $700 million valuation it received last year.

In 2014 it tried to sell itself to Twitter for $1 billion.

Raine and Temesek also demanded, given the risk they were taking with the bail-out, that they will be first in line to get money if SoundCloud ends up sold or goes belly-up.

Questions are also being asked as to why Ljung and Wahlforss are being kept on when they were part of the original problem.