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Crisis Funding: A Lesson from SoundCloud

 

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SoundCloud’s New Year began in the worst possible way, not with a failed diet or an abortive “Dry January” effort but with a funding crisis that threatens the survival of the streaming business. A month ago, the German brand told investors that it was running out of money; now, it is losing top staff to “new adventures” – or greener pastures. It perhaps doesn’t help that SoundCloud’s very meticulous copyright policies have alienated some musicians on the platform.

Twitter

Despite an audience of 200m people and almost a decade of operation, SoundCloud has yet to turn a profit on its business, losing €51m ($54m) in 2015. The company recouped about half of that loss with a round of fundraising in June 2016 but, to quote an anonymous source on the Financial Times website, SoundCloud is now “begging” for money. The company retaliated, referred to the newspaper’s claims as “surprising and disappointing”.

It’s still a stunning fall from grace for a brand courted by Twitter – an investor to this day – and Spotify, which recently bailed on buying the company to ease its path to stock market flotation, but SoundCloud’s numerous efforts at survival – shifting to a subscription model and earning support from major record labels – never paid off. So, with an uncertain future ahead, what’s next for the Berlin-based site?

Indiegogo

With the proliferation of crowdsourcing websites like Kickstarter and Indiegogo, funding can be straightforward for a brand with a unique proposition. However, it’s debatable whether SoundCloud has anything new to offer, especially in the shadow of vast social networks like Facebook, Twitter, iTunes, YouTube, and Spotify. SoundCloud Go, the brand’s premium service, was more of an ad-lite version of the standard platform than anything truly different.

For the more conventional business, loans – bank or otherwise – can provide a convenient way to plug a funding shortfall. Brands like Lendio provide loans of up to $2m and, according to Lendio reviews, they cater for almost every possible business need, from business acquisition to funding for commercial real estate.

The market for financing is so expansive that websites comparing the best business loans are almost an essential part of unravelling the options out there. Businesses can usually lend sums as low as $1,000 and, while that might not help SoundCloud, it can be a boon for smaller ventures.

Startup

The slightly strange fact is that, ten years down the line, SoundCloud still considers itself a start-up hunting down investors. However, rather than painting the brand as a rosy-cheeked newcomer, that position makes it seem rather aimless. A decade of wandering profitless and without a business model to keep it alive unsupervised is not great news for investors. It’s a fair point – not every brand hits the ground running – but SoundCloud is in a precarious position despite its prowess as a fundraiser, a trait that has seen it raise $193m over six rounds.

There are perhaps too many heavyweights in the space occupied by SoundCloud for it to prosper alone so the company’s future may hinge on a shift in attitudes among online communities, away from the heavily corporate, advertiser-friendly environments of Facebook and Yahoo to smaller networks.

Given the recent attempt by Spotify though, SoundCloud is almost inevitably going to be cannibalized by a corporation. It’s a steep price to pay but, if the result is the preservation of a space serving amateurs, it might prove a noble one in hindsight.

About the author: AlleyVoice

AlleyVoice is a platform that allows startups and marketers looking to connect with the AlleyWatch audience to provide content of interest – and giving them the opportunity to actively participate in the conversation.

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