
SoundCloud saved by emergency funding as CEO steps aside - janober
https://techcrunch.com/2017/08/11/soundcloud-saved
======
WisNorCan
I am surprised that the majority of commenters believe that this marks the end
of SoundCloud. SC just secured $170M in new funding with $100M revenue run
rate. They have a product that many users and creators love. The new CEO is a
Harvard Business School grad with experience as CEO of Vimeo, a similar media
business. He brought the COO of Vimeo with him. If SC can reduce cost (not
knowing what the drivers are, it is unclear how easy that is), they might be
able to reach profitability quickly. This might be the start of operating SC
like a real company by a real operating team.

 _" The new management should provide some additional confidence. I’d
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."_

On the other hand, existing employees equity value is likely wiped out in the
down round. They are underwater on strike price of options, face additional
dilution from prior investors' anti-dilution provisions and now liquidation
multiples/preference from investors.

~~~
seizethecheese
> The new CEO is a Harvard Business School grad

Yeah, they're toast.

~~~
WisNorCan
That is just a bias that I recommend you try to get over. It will help you
better assess people and situations.

We can debate the long list of HBS graduates that have been amazing operators
in tech companies. Every CS grad isn't a great CEO & every HBS grad isn't a
terrible CEO. I wish the world was that simple.

~~~
exogeny
I could counter that you need to get over your own bias, which is the
implication that a CEO is going to be successful or is suitable for the role
simply because he went to Harvard.

~~~
WisNorCan
I didn't claim that. Please re-read my comments and point out where I claimed
that. I said "every HBS grad isn't a terrible CEO". It does not imply "every
Harvard grad is a great CEO".

On SC specifically, I do believe that a company that has had issues with
financial management and business model will benefit from someone with
business training and experience operating a media business with similar
characteristics. Kerry seems like a solid hire for the role. He may still
fail.

~~~
hobofan
> The new CEO is a Harvard Business School grad with experience as CEO of
> Vimeo, a similar media business.

If you didn't intend to express a bias then what is half of that sentence,
other than unnecessary filler?

~~~
WisNorCan
Everything is situational. Given the set of problems that SC has in terms of
business model and financial discipline, the ideal job spec would ideally have
academic and work experience in the relevant area.

HBS is probably as good choice as any if you are going to get a general
business background. And CEO of Vimeo seems like a great work experience with
substantial ability to pattern match.

That is very different than saying that “all Harvard grads make great CEOs” If
the biggest challenges were legal, I would probably want a CEO with both
theoretical and practical legal background. If the biggest challenges were
related to security, I would look for someone with background in security,
etc.

My bias is finding a CEO with relevant prior experience. Especially in a
turnaround situation, I would not want a CEO who is learning on the job.

~~~
vadym909
>My bias is finding a CEO with relevant prior experience.

Should've stuck to just 'CEO of Vimeo' then. In most tech companies an MBA
exec is seen as a negative (at least by the engineers). What you did matters
more than whether you have a degree or not.

~~~
WisNorCan
First, you are arguing that I should hold an opinion, because most other
people hold that opinion. I prefer to think independently.

Second, you are presenting this as an “Or” between education and experience.
If I had to choose, I agree with you and I would also choose experience over
education. However, it is a false trade-off since this CEO has both which I
would choose over just having one.

------
BlackjackCF
Ooooh boy. This feels like the kiss of death for SC. So many startups hit this
point and then get rescued at the 11th hour with more funding... on the
condition of ushering in a new CEO and COO to try and pivot the company's
direction. They completely change up the product and drive away the users, and
the entire thing collapses like a house of cards.

~~~
oelmekki
Seems to me like completely changing up the product was the previous direction
(trying to squeeze in some kind of spotify-like product), and the article
mentions explicitly the new CEO want to get back to the core value of the
service.

Of course, we'll see what they mean by that and how it will be executed, but
it sounds like good news, actually.

~~~
forthelove
That's the problem tho, isn't it? The core value of the service was great for
fans, but not for any sort of business and certainly not for the labels
(without whom SC cannot exist and hope to make any money whatsoever).

~~~
nitrogen
Why does SoundCloud need labels? They just need a way to make money with
independent musicians.

~~~
islanderfun
I also believe it can make money on independent musicians. But can independent
musicians money _scale_ to VC expectations?

~~~
bhalp1
Well at this point the expectations are a little lower. "Anything but going
all the way to zero" seems like the current tone.

~~~
acchow
> "Anything but going all the way to zero" seems like the current tone.

You don't invest in a company without expectations of ROI

------
thinbeige
Slightly OT: I understand how people feel about SoundCloud. But I am surprised
that most of us exactly know what went wrong. They know what mistakes the
management did and where the product should have gone. They know for sure how
to lead employees, in good times and in bad times. They know when you should
hire and when you should fire.

I wonder how many of us who are so fast in judging have really run a mid- or
late-stage startup and know what they are talking about.

I know just one thing: Leading and managing people is a super tough job. We
are not talking about leading a small team. No, it's leading a corporation and
worse, managing investors who are chasing you night and day and playing power
politics for years while being the nice daddy VC writing witty blog posts. And
don't forget the three labels who blackmail you to death but are shareholders
at the same time. Stuff nobody knows. We only know that Alex went to Burning
Man and fired 173 people. So he must be a bad CEO having no clue of music,
product and leadership. Of course.

It's easy to give good advice from outside. But it's so hard to understand
what actually happens inside. All of us who managed just a small company know
what I am talking about.

Managing machines, code or even a Kubernetes cluster is easy as pie compared
to what the SC founders were going through the last years. Machines are
predictable, humans are not. Just read Machiavelli's The Prince and get a
notion of what people are willing and able to do to deal with other people.
Backstabbing is their daily business and Game of Thrones is not that far away
anymore from the life of a venture-backed CEO.

Not that I like Alex and Eric very much or what they did. Honestly, I don't
care at all, I find SoundClound's products and the repetoire rather mediocre
and I don't believe in online music as a healthy business model.

But I don't know any founders in Europe and in Germany who raised that big
funds and could keep control for that long and the product still in an ok
shape. Look what Travis is going through right now. For some who have never
been in such a position, they just can't imagine how high the pressure and
extreme the psychological stress is, how many ultra aggressive sharks are
floating around you just waiting for one single mistake. Then, loosing control
of everyhing happening in and around your organization happens quicker than
you can think.

~~~
tomc1985
The problem is this bullshit game of business as you described. Soundcloud
shouldn't need that kind of headcount or costs. We need new models of business
that lock out the existing shareholder and management classes and their toxic
thinking in favor of a structure that is far more equitable and hierarchically
flat. Soundcloud is and was only ever for the users. A small power group
(headcount-wise) trying to monetize SC will always be doomed to fail.

So many beautiful ideas are destroyed by the greed and avarice that underpins
'fiduciary duty to shareholders' and their expectations of unnatural and
unhealthy growth.

------
dchichkov
_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_

It's sad that the execs get free pass on ethics violations like these. And
there are no consequences for these execs. And I don't understand why after
such violations people still stay with the company.

~~~
twunde
Well mostly free of consequences. The exec team has basically been replaced
and SoundCloud may still die as the result of these actions. As for why people
stay with the company, there are a couple reasons. For many people, especially
non-engineers it can be difficult to find another job. Many people are
probably helping to try and get ex-coworkers jobs. Some may believe in the new
direction. Others may be for various personal reasons, semi-stuck in the job.
My guess is that you'll see a decent number of people (20-30%) leaving over
the next 6 months, but that the majority will stay and help reshape SoundCloud
as long as it looks like the company can still succeed.

~~~
hobofan
I'm really questioning if they can really do much reshaping with the small
amount of engineers remaining. Soundcloud has probably one of the most complex
architectures and just lost a significant part of the people that know the
system.

~~~
twunde
That's the $170M question. I definitely would be concerned about the lack of
engineering. That said, the people left will find that they're able to
complete significantly more work since there is less communication overhead.
They will also certainly will be working on very focused projects that will
affect profitability.

------
forkLding
Can't SoundCloud be the recording studio that signs on popular and promising
indie artists (such as SoundCloud rappers like Lil Yachty or XXXTentacion who
have to promote on their own) and provide marketing, music production
connections and management for them and in turn earn a royalty/cut.

This way it doesnt alienate its users but in turn empowers and supports those
that people like?

Just my two cents, I could be totally wrong or that they do this already,
happy to hear any feedback on this.

~~~
pmarreck
They could, although there's a number of other players already in that
space... [https://www.audiomack.com/](https://www.audiomack.com/) comes to
mind (but I know the lead developer)

~~~
forkLding
In a way that validates the idea, if it was successfully tried out by another
company that could mean a lot of potential for SoundCloud simply due to
SoundCloud's brandname and mass amount of content contributors.

I haven't heard of Audiomack before and I checked out their website right now
but I was inspired for the music management idea after seeing a lot of Youtube
music videos from indie music artists linking their SoundCloud in their
descriptions so I see SoundCloud more filling in the gaps better because its
what musicians are sort of trying to do with SoundCloud but hacking it
together in a rough way.

Edit: As well, I had a friend who was producing music and singing with some
rap and RnB who heavily relied on SoundCloud and I noticed he basically self-
funded his music videos by holding parties and filming it as well as promoting
his music by literally going around and playing it. I think young and upcoming
musicians struggle with entering the mainstream and SoundCloud can help due to
its heavy base of indie or not-yet mainstream musicians and listeners.

------
dpflan
Does SC help fledgling artists get "discovered" and get record deals
(financing for their art)? Could an integration with something like Patreon
help increase the value of using SC: first for creating content, then for
allowing others to consume it.

Also, how has BandCamp done so well as an independent music service? Any
lessons to learn there and to apply to SC?

~~~
lavezzi
On your first point, 100% yes. I used to run a relatively popular new music
blog, and have several friends who still do. SoundCloud used to make up 98% of
my blog post music embeds. And that is absolutely where they went wrong, even
from the get go. It would have been insanely easy for them in the last decade
to implement: one-click .mp3 purchases for individual songs, artist
merchandise stores, ticket sales, etc. You name it.

Instead they made a conscious decision to push ahead with bizarre business
strategies and without providing any meaningful functionality updates to their
core service (I even think they regressed in this regard, the dumpster fire
that was song reposting was the final nail in the coffin for me).

Honestly I think the service needs to make a graceful exit to let another
service emerge who actually wants to push things forward for developing new
artists.

~~~
remote_sf_
Does amazon still hold the patent for one-click purchases?

~~~
i_cant_speel
I can't believe they were ever allowed to have that patent in the first place.

------
dpflan
_Probably worthwhile to link this HN post of SC 's own announcement_:
[https://news.ycombinator.com/item?id=14991071](https://news.ycombinator.com/item?id=14991071)

------
nihonde
Yet another example of a great service that was killed by all the wrong kinds
of licensing issues. Artists always saw the discovery potential in SoundCloud
but bean counters just saw an opportunity to put the squeeze on.

------
sillysaurus3
This is what happens when a startup fails. The problem with SoundCloud is that
Spotify ate their lunch. I'm not sure this is solvable -- it's like being
second place to eBay. Trainor might not be able to do much unless he pivots
the company Jobs-style, which isn't an easy feat.

I have to wonder why the VC sunk more money into SoundCloud. Do they see an
opportunity we don't? Or is it politicking? Hard to tell.

~~~
tomphoolery
Soundcloud and Spotify fill very different niches in the music streaming
market. Spotify is slightly more difficult to break into, you have to either
be signed to a label or start your own label and get set up with a distributor
to put your music on it (just like Tidal or any of the download stores). With
Soundcloud, you can upload anything you want, and the barrier to entry is very
low. It's important to those of us who are discovering new artists for
whatever reason (DJ, record label, promoter, management, etc.), because
artists can put their music on Soundcloud for the world to hear without
already being involved in the industry.

Soundcloud Go turned them into a competitor with Spotify, but that was never
their forte in the first place. They just saw it as a way to possibly make
money. I think they need to focus on the community aspect of things, and see
themselves as more of a social networking tool centered around music rather
than yet another music store/streaming service.

~~~
jmreid
It absolutely isn't hard to get music on Spotify. DistroKid (distrokid.com) is
$20 a year to upload unlimited tracks to all the music services.

But, you're point about being able to upload "anything" to SoundCloud stands.
It was a place for remixes, demo tracks, podcasts, etc. You aren't able to
upload just anything to the music streaming services. (need album artwork,
etc)

And your last paragraph is spot on. I'm surprised we didn't see them release
their own mobile OS and phone /s

------
bkanber
The article alludes to $169.5M raised at a pre-money valuation of $150M. I'm
not sure I've ever seen a round like this take over 50%. Who knows what the
future of the company will be, but one thing is for sure: it's completely
investor-controlled now.

~~~
submeta
Wasn't the valuation at more than 700 million some time ago? What are all the
consequences of dropping the valuation from 700m to 150m? Any ideas?

~~~
bkanber
Dilution as usual. The last investors, whom I believe invested at a higher
valuation, have had their liquidation reduced. The founder shares are probably
highly diluted; I can't imagine the founders owning more than 10% combined.

------
beebmam
Soundcloud offers an amazing service that benefits everyone that uses it. In a
modern technologically competent socialist society, why can't something like
this be run by the government?

The amount of art that would be lost if soundcloud actually shut down is
tremendous. There's a public interest in keeping it around, in my opinion

~~~
nodesocket
Umm no. Listen, I love SoundCloud, but government tax dollars should not be in
the business of providing electronic music. At least US tax dollars, Germany
can do what it pleases.

~~~
beebmam
Why not? The cost of running Soundcloud is comparable to the cost of one F-35
jet.

It would be funding a distribution platform for art. Most of the music on
soundcloud is free for anyone to listen to. That's a public benefit, in my
opinion.

~~~
icelancer
>The cost of running Soundcloud is comparable to the cost of one F-35 jet.

This comparison is like saying "if all we do is capture 1% of a huge market,
we'll be millionaires!"

There's quite a bit more to it than simply saying "Build one fewer JSF
boondoggle, please. We need to prop up [pet project X]." Considering that
comparison is used hundreds of times daily, I might add... it's not exactly
scalable.

The F-35 is a boondoggle to say the least but I actually think the ROI on it
is considerably better than propping up SoundCloud.

------
artursapek
How does SoundCloud need 173 employees to operate? I mean, they laid off 40%
and nothing seems to have changed so they clearly didn't. I wonder why
startups tend to run so inefficiently. Has recently happened to Twitter, Etsy,
etc. I imagine the companies could still be a lot more lean staff-wise than
they are.

~~~
pcsanwald
\- Scaling down a company is generally hard and (lately) not done as often.
It's pretty difficult to spend 6 years where hiring is your biggest priority
(from executive level on down) and then all of a sudden it isn't.

\- It's quite common for investors to push hiring more people as a way to get
more stuff done. The general refrain you will hear from many investors on how
to (move faster|fix problem) is to hire for it.

\- The default thing to do with capital to invest is to acquire/hire.

I guess to summarize, staying lean just isn't a priority for these companies
or their investors. The expectation is enormous growth or failure. The reality
is often quite more nuanced.

~~~
neerkumar
It is really hard to be efficient in terms of headcount. Every single manager
inside the organization has a personal incentive in pushing to hire more
people cause that's how we measure career growth. So they all come up with all
sort of BS to justify hiring more people.

The crazy thing is that it should be exactly the opposite. People should get
more credit for achieving X with as few people as possible. Instead it works
the other way round.

~~~
artursapek
Interesting insights... thanks to you and parent. I have been thinking about
this for a while. It feels very broken.

------
myth_drannon
Programming at work will not be same without SC. 8 hours per day of
productivity boost.

~~~
blawson
DI (digitally imported) does a pretty good job of filling my work-electronic-
music fix.

~~~
chrisper
Mhh it appears to need Adobe Flash though!

~~~
daxelrod
They used to provide standard MP3 streams. Not sure if they still do.

~~~
edp
They still do, but you need to be a subscriber.

------
macrael
What role did Chance the Rapper play in this? When they were making chooses
that they would shut down he reached out to the CEO personally, I know.

------
rdiddly
_" This financing means SoundCloud remains strong, independent and here to
stay._

Independent? I beg to differ...

------
supernintendo
I've been saying this for years, SoundCloud needs some way for artists to
monetize directly through the platform that doesn't involve advertising. Add a
"support this creator" button to every page and take a cut like YouTube does
with its Super Chat feature. I think they really missed out on this
opportunity. Look at all of the podcasts that host on SoundCloud but monetize
with Patreon, for example.

~~~
hobo_mark
...and all the indie musicians that monetize with Bandcamp.

------
devmunchies
It would be interesting if SoundCloud implemented a Patreon model, where you
can pledge $1-$100/month to an artist you like, and SC takes a small cut.

~~~
hobo_mark
This would have been the best expression of SoundCloud's DNA since the
beginning, if they had not involved VCs and decided it was cool to try to
become Spotify instead.

------
_lol
Can someone ELI5 how can a company raise a $169.5m at a valuation of $150m?
How can they raise more than what the company is valued?

~~~
andruby
By giving away more than 50% of the equity.

pre-money valuation: $150M

investment : $169.5M

post-money valuation: $319.5M

So the investors got about 53% of the company for $169.5M.

~~~
cbcoutinho
So essentially the company doubled in value - the investers thought it was
undervalued and were willing to pay the difference

~~~
tomhoward
No - the investors were willing to add $169.5M of value to the company by
giving it $169.5M in cash.

The company is "worth" the same as it was before, plus $169.5M new cash in the
bank.

In return, the investors received newly-issued shares at a price based in the
pre-investment valuation of the company.

So there's no paying any "difference"; only increasing the valuation of the
company by injecting new cash into it and creating new shares.

------
koolba
How much funding did they get and how much runway does hat provide?

I don't see it listed in either the TC article or any of the top level links.

~~~
adamnemecek
170M. [http://www.brooklynvegan.com/soundcloud-saved-
by-170-million...](http://www.brooklynvegan.com/soundcloud-saved-
by-170-million-investment/)

As for runway, hard to guess b/c the new CEO will presumably make some
changes.

~~~
mbesto
> I guess hard to guess b/c the new CEO will presumably make some changes

That and there are going to be some seriously restrictive terms to that money.
Also I think part of it is used to pay debt.

------
pier25
Does it make sense to pour money to keep a sinking ship afloat?

Just like Twitter, if the service changes too much it might lose its only
asset (the community) but if it doesn't change it will sink.

------
swampthinker
So SC will focus more on driving towards profitability now instead of growth.
I wonder if SC will stagnate, or this cash infusion + new leadership will
provide much needed stability.

------
rakel_rakel
To me it's weird, and very "bubbly" that someone would make an investment of
this magnitude, at this stage, in a business that's proven as unsuccessful as
SoundCloud. With this, and all the previously recieved/spent VC, do people
investing like this actually expect to get their money back, and with profit?
I can't wrap my head around that. strange times.

------
ovrdrv3
If they do go down, I sure am going to miss that creamy react / redux front
end... Amazing work by those devs!

~~~
phillywiggins
If you're talking about SoundCloud.com, actually a Backbone app :)

~~~
ovrdrv3
What?! Thanks for the insight!

------
exabrial
As a future feature, it would be pretty awesome to have SC be some sort of
free DAW, or tools to help the musician create tracks, rather than just
hosting.

That would be a differentiator between them and uploading to youtube with a
static image.

------
ulfw
I can't see how keeping the co-founders on as Head of Product and Chairman
respectively will help if the bad product decisions made (Soundcloud Go) were
what basically brought Soundcloud down.

------
nodesocket
It's funny how German banks/VC's did not step up to make an investment in one
of the most visible tech German companies. Instead a New York based firm and
Singapore firm did.

~~~
hobofan
Why would they? I think that would be a bit much money for most German VCs
just to support a "trophy" startup.

I think they already lost most of the local support here with the layoffs. The
VCs might even be happy that the talent that was tied up in SC is now on the
free market and available to help build the next "big" startup.

------
richardknop
I really don't like this. This looks like a death omen to me.

They will probably fire more employees, do 2 or 3 pivots to different business
models and when that doesn't work out the company will die.

------
unixhero
Bye bye free sc egress traffic.

Download your favourite content now, before that value lever has been pulled,
and it's too late.

------
crispytx
Here's one of their problems: Check out their advertising page
([https://advertising.soundcloud.com/](https://advertising.soundcloud.com/)).
You have to contact them if you want to advertise on their platform. You ought
to be able to upload your 15-second ad, provide your credit card info, and
starting running advertisements... $$$

~~~
pbhjpbhj
Curation is probably a good thing if you want to retain users.

------
ionwake
Is it possible to buy shares in soundcloud ?

------
buryat
This article would suit Washington Post better

------
smegel
Wow for an in-browser music player that almost always doesn't work I am
totally not shocked it is dying.

------
Eridrus
Does SC have ads? Would ads completely destroy the appeal? Could they not do
the same free tier things as Spotify where you're largely paying to remove
ads? Obviously not at $10/month, but maybe a few bucks. Could they license
their content to Spotify/etc for ad-free play rolled into your existing
subscription service?

~~~
Snowdax
Yeah they introduced ads in the past few months. Already looking for
alternatives that have some resemblance of my existing SC library because of
it.

I will mourn the loss of SC as it has been a superior product to Spotify, but
it's all about two things:

1\. Does it have the music I listen to? 2\. Is it obnoxiously in my face
trying to make money while I'm trying to concentrate with background music?

Right now, they're starting to ruin criteria 2 and there isn't much reason to
be loyal to the brand. The only problem for me now is, that whatever
alternative I find is. Inevitably it will befall the same fate.

