Spotify has raised about $100 million from a group of investors led by Goldman Sachs in a round that puts a $3 billion valuation on the company and completes its eight-month search for new funding, according to two people familiar with the situation.
The valuation is lower than the $4 billion the digital music company originally sought but three times higher than its last funding round, which took place just over a year ago.
The round propels Spotify into the premier league of private Internet companies, making it one of the few European startups to sit alongside Silicon Valley's next great hopes, such as Twitter, the messaging site, Square, the payments company and Airbnb, the travel site.
The injection of cash comes as the digital music landscape is again in flux and will boost the lossmaking Swedish company's efforts to withstand stronger competition from Microsoft, Deezer and, soon, Apple in online music streaming.
Concerns about a "resurgent" Microsoft and Apple, as well as greater investor caution around internet companies after Facebook's shambolic initial public offering in May, contributed to the lower valuation and a delay in closing the round, another person familiar with the negotiations said.
Deezer, a French streaming rival to Spotify, last month raised $130 million in new funding led by Len Blavatnik's Access Industries, which also owns Warner Music.
Apple is in discussions with music companies about adding a personalized digital radio service to its iTunes download store, which remains by far the biggest contributor to music companies' digital revenues.
Investors have treated Apple's plans as a threat to Pandora Media, the leading internet radio brand with 1.25 billion listener hours last month, putting its shares under pressure.
Pandora's shares on Wednesday touched a new low, closing down 4.5 per cent at $7.31, after 125 artists from Bryan Adams published an open letter protesting at the company's push to lower the royalties it pays artists and musicians.
Pandora has urged Congress to pass the Internet Radio Fairness Act, which could cut royalties by 85 per cent, the artists said. Pandora paid 50 per cent of its revenue in royalties last year, and argues that the act would "establish a level playing field" with cable and satellite radio.
Existing Spotify investors include Kleiner Perkins Caufield & Byers, DST Global and Li Ka-shing's Horizons Ventures. The New York Times reported that Fidelity Investments and Coca-Cola, which announced a marketing partnership with Spotify this year, have also participated in its latest round.
Spotify charges $10, €10 or £10 a month for unlimited access to a library of 18 million songs and offers a limited amount of listening for free. It has more than 15 million active users, including more than 4 million paying subscribers.
Some artists have kept their music off streaming services such as Spotify, including Taylor Swift, the US artist whose latest album sold more copies in its first week than any record in the last 10 years.