SoundCloud has just closed the necessary funding round to keep the struggling music
service afloat. CEO Alex Ljung will step aside though remain
chairman as former Vimeo CEO Kerry Trainor replaces him. Mike
Weissman will become COO as SoundCloud co-founder and CTO Eric
Wahlforss stays as chief product officer. New York
investment bank Raine Group and Singapore’s sovereign wealth
fund Temasek have stepped in to lead the new Series F funding
round of $169.5 million.

SoundCloud laid off 40 percent of its staff last
month
, with 173 employees departing in an effort to cut
costs. The company only had enough runway left to last into Q4,
and today’s investor decision was viewed as a do-or-die moment
for the company. Now it will have the opportunity to try to
right the ship, or sail into an established port via
acquisition.

SoundCloud declined to share the valuation or quantity of the
new funding round. Yesterday, Axios reported the company was raising
$169.5 million at a $150 million pre-money valuation.
That’s a steep decline in value from the
$700 million it was valued at in previous funding rounds. The
new Series F round supposedly gives Raine and Temasek
liquidation preferences that override all previous investors,
and the Series E investors are getting their preferences
reduced by 40 percent. They’re surely happy about that, but
it’s better than their investment vaporizing.

Raine will get two board seats for bailing out SoundCloud, with
partner and former music industry attorney Fred Davis, and the
vice president who leads music investments, Joe Puthenveetil,
taking those seats.

While abdicating the CEO role probably wasn’t exactly what
Ljung had hoped for, at least he gets to stay on with the
company as chairman of the board. “This financing means
SoundCloud remains strong, independent and here to stay,” he
wrote.

SoundCloud says its total revenue is now at a
$100 million annual run-rate. If it can keep costs low and grow
that number, it may eventually get to break even and no longer
need infusions of investor capital.

TechCrunch broke news about the magnitude of the SoundCloud
crisis last month. Sources from the company told us the layoffs
had been planned for months, but SoundCloud still recklessly
hired employees up until the last minute, with some being let
go within weeks of starting. Employees told TechCrunch that the
company was “a shitshow” with inconsistent product direction
and dwindling cash. Ljung was seen as reluctant to be honest
with the team, and unfocused as he partied around the world
like a rock star.

Our report led to a flurry of follow-on coverage, prompting
fans and artists to speak up in favor of the service. The rally
was reminiscent of the love shown to Vine after Twitter
announced it would shut down. Popular musician Chance The
Rapper tried to get involved to save the company. He, like many
other indie hip-hop artists, made their name on the platform as
part of a genre that came to be called “SoundCloud Rap.” In the
end, SoundCloud was saved when Vine wasn’t.

SVP of Entertainment, AOL Kerry Trainor attends the 2011 TV
Summit Presented By Academy Of Television Arts & Sciences
Foundation & Variety at Renaissance Hollywood Hotel on
February 15, 2011 in Hollywood, California. (Photo by Todd
Williamson/WireImage)

For now, music and other audio saved on SoundCloud is safe. But
the company will need to find a way to make its subscription
tiers more appealing and scale up its advertising despite
having much less staff to drive the changes. If it can’t,
SoundCloud could be back begging for cash in a year.

The new management should provide some additional confidence.
I’ve interviewed both Ljung and Wahlforss in the past, and
neither had answers to the big questions facing SoundCloud
about its product direction, business model and the spurious
copyright takedowns that have eroded its trust with musicians.

Trainor may be able to institute some more discipline at the
startup. He was the CEO of Vimeo from 2012 to 2016, and has
poached his former COO there to help run SoundCloud. They
helped Vimeo fend off bigger rivals like YouTube by doubling
down on what was special about the service: a focus on
high-quality artful film rather than amateur viral videos. That
experience makes Trainor a great fit to lead SoundCloud, which
is fending off bigger rivals like Spotify and Apple Music.

SoundCloud’s best bet isn’t to battle them directly, but double
down on the user-uploaded indie music scene, including garage
demos, DJ sets, unofficial remixes and miscellaneous audio you
can’t find elsewhere. Whether it stays independent long term or
tries to seduce an acquirer, SoundCloud will benefit from
spotlighting its unique community of creators and hardcore
listeners.


Featured Image: TechCrunch

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