When Samsung was pondering where to locate its new $150m (£116m) fund for European start-ups, it wasted little time before scratching London off the list.
The British capital was “not a fun place to live unless you are really rich”, according to an executive at the South Korean giant. Exorbitant rents, meanwhile, had made it “increasingly hard for people to build companies” in London, added Felix Petersen, managing director of Samsung Next Europe.
In the German capital, by contrast, entrepreneurs had the freedom to “experiment and play around with technology in a more relaxed environment”, he said. No prizes for guessing where the Berlin-born Petersen will set out Samsung’s stall.
After a slew of recent blow-ups — Powa and Ve Interactive, to name but two — this was another humiliation for the young guns plotting world domination from their Hoxton lairs.
But Berliners indulging in schadenfreude would do well to ponder the travails of their city’s most feted tech company. SoundCloud, a music streaming service that boasts the Hollywood star Ashton Kutcher among its backers, is fighting for its life. This month it sacked 40% of its workforce in a desperate attempt to slash costs.
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In the decade since it was founded by the Swedish musos Alex Ljung and Eric Wahlforss, the company has burnt through more than $200m. Unless it can persuade investors to dig into their pockets again, it could run out of cash by year end.
Launched in 2008, SoundCloud started life as a place where up-and-coming songwriters, bands and DJs could showcase songs and mixes. As a cultural enterprise it has been a phenomenal success, claiming 175m regular users.
The platform is prized as a breeding ground for new artists. In February Chance the Rapper won best rap album at the Grammys for a mixtape available on SoundCloud, becoming the first artist to win for a streaming-only album.
Financial success has proved far more elusive. Ljung and Wahlforss have been living beyond their means for years. At its Berlin HQ, SoundCloud enjoys free lunches prepared by the city’s hottest new chefs and its fridges are stocked with soft drinks and beer. When profits froth over like a stein of weissbier, such largesse can be justified. SoundCloud, though, has haemorrhaged cash: in 2015 it lost €51m (£45m) on revenues of €21m.
The founders have singularly failed to find a way to make money from its large audience. At first it relied on advertising, but then launched a $10-a-month service last year. Neither approach has worked. SoundCloud generates a paltry 2 cents a month from each user, compared with $2.54 for Spotify, according to Richard Windsor of Edison Investment Research.
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Despite its unconvincing business model, SoundCloud raised $70m from Twitter in June last year, at a reported $700m valuation. Some months later, the company quietly put itself up for sale, but bidders were turned off by the reputed $1bn price tag.
In March SoundCloud signed up to a $70m loan, putting up all its possessions as security. A 42-page list of its collateral includes hundreds of smartphones, tablets and laptops. In the event of default, creditors can even look forward to seizing a €2,049 lounge chair.
In a blog last week, Ljung said the job cuts would put SoundCloud on the “path to profitability” and help secure its “independence”.
That would be music to the ears of its shareholders — and pampered workforce. But after signing a Faustian pact with its lenders, a cut-price takeover by YouTube or even Facebook seems the more probable outcome.