Utopia is asking its shareholders to help it raise over $90m, as it forecasts profitability by June 2024 – Music Business Worldwide

It’s never a dull week at Utopia Music.

A few days ago, the Switzerland-headquartered music firm confirmed that it was laying off around 15% of its global workforce, totaling around 100 jobs.

That news arrived less than six months after a previous round of layoffs at the company in November, which saw 20% of its headcount – or around 230 positions – axed.

Now, the company is aiming to raise EUR €65 million ($72m) via a new shareholder option program. 

That’s according to a letter issued to Utopia shareholders on Friday (April 21), obtained by MBW. The company says that the new capital would fund its operations until it becomes profitable, which it projects to be in June 2024.

In total, Utopia says it is looking to raise €83 million ($91m) from this new round of activity.

That includes the €65 million in new share options, plus “up to a total of €25 million” that has already been committed by Utopia’s “three largest shareholders through conversions of their shareholder loans and convertibles”.

(This €25m figure, says the firm, may reduce depending on how close it gets, via the €65m offer, to raising €83m in total.)

Existing shareholders are being given one option for every four shares they already own. Shareholders can then choose to convert these options into shares, for €10 per share, before the offer expires on May 5.

According to documents seen by MBW, Utopia plans, via the options program, to dilute its current share structure (33.11 million shares) with a maximum of 7.5 million new shares.

In the letter, Utopia founder and Executive Chairman, Mattias Hjelmsted, revealed that Utopia’s annual net revenues in 2022 stood at €24 million on an adjusted pro forma basis (i.e. omitting the turnover of recently sold assets such as Sentric).

Utopia, wrote Hjelmsted, is targeting €41 million in net revenues in 2023, representing growth of 71% year-on-year.

“At the same time, we are improving our margins through scalable tech products, which will be an important aspect in our profitability journey,” he said.

Hjelmsted told shareholders that in recent years, Utopia has “deployed a ‘hyper growth’ scaling strategy intended to make use of the then lucrative market that strongly rewarded growth, without focus on immediate profitability”.

He added that this strategy “was highly dependent on new investments fuelling that growth” and claimed further that, “halfway through that process, the world changed dramatically and the funding environment became very sensitive to growth-focused (and not-yet-profitable) companies like Utopia”.

Continued Hjelmsted: “While many companies continued to hope for the world to turn better, we made some tough decisions, and we adapted.”

“We are currently holding an internal fundraising round that reflects the support of our existing shareholders and will help further propel the company towards profitability.”

Utopia, in a statement to MBW

MBW reached out to Utopia today (April 24) for a comment about the plans to raise new capital via the new options program.

A spokesperson told us: “Utopia has previously raised several successful financing rounds and we are grateful to have a strong shareholder base that is committed to the company and to its future.

“We are currently holding an internal fundraising round that reflects the support of our existing shareholders and will help further propel the company towards profitability.”

Utopia’s so-called “hyper-growth scaling strategy” saw the company go on a hiring and acquisition spree in 2021 and the beginning of 2022.

Amongst the companies it bought during that time were Nashville-based financial services company, Lyric Financial and  Quincy Jones-backed emotional data enrichment company Musimap.

It also bought UK warehouse, fulfillment, and distribution firm Cinram Novum; UK-based physical and digital music distributor Proper Music Group; and Absolute Label Services, another UK-based distribution and services provider for independent artists and record labels.

In December 2021 it acquired US-based music industry directory ROSTR and Austria-based music data analytics platform, ForTunes. In February last year, Utopia acquired Liverpool-based music publisher and publishing administration company Sentric Music Group.

Those latter two companies have since been divested by Utopia.

Believe bought Sentric from Utopia last month, just a year after Utopia itself acquired the firm, while Utopia sold music industry directory and data platform, ROSTR, back to its founders in February.

Meanwhile, Utopia is reportedly being sued by US music technology company SourceAudio, which is accusing Utopia of reneging on an agreed acquisition deal.

Commenting on the post-Sentric and ROSTR era at Utopia, Hjelmsted told shareholders on Friday that “Utopia’s new, more focused strategy will center on the core of Utopia, namely the Utopia Platform”.

He added: “Going forward, Utopia will focus on scalable high-margin products that drive revenue and maximize shareholder value – the way we always intended.”

Commenting on the recent layoffs, he wrote: “We have reduced costs through two rounds of necessary rightsizing (20% in Nov. 2022 and an additional 15% in Apr. 2023), and we are now on a path towards profitability and sustainable growth.

“Simply put: stronger revenue streams at a lower cost. To further strengthen our company, we made changes to our management team earlier this year to have people with more experience commercializing products and building relationships with the industry.”

High-level exec departures at Utopia this year included the exit of the firm’s long-time CEO, Markku Mäkeläinen, who left as part of a management shakeup in January, which saw Hjelmstedt assume responsibility for the day-to-day running of the company.

Following the news of Sentric’s acquisition by Believe, we learned that former Downtown executive Roberto Neri, who joined Utopia as its COO in 2021, and was named as the new CEO of Utopia’s ‘Music Services’ division in January, has left Utopia to become CEO of the global publishing division of Believe.

Hjelmstedt told shareholders in the letter last week that “according to the financial forecast set by the new management team, we now need some additional funds before we reach profitability”.

“We have the products, we have the sales pipeline, and we have the team. We have, in fact, done the majority of the work necessary to take us to profitability. We now just need the required funding to see this plan through.”

He added: “Before turning to external investors we have decided to give you, our shareholders, free short-term options that can be converted to shares at the price of €10 per share (valued at €50 in the pre-C round).

“Through this approach, you get to benefit from the hard work we’ve done in these past months and reduce the risk associated with trying to raise funds through a priced round in an unstable market.”

Amongst Utopia’s products are its Track’n’Claim tool, which Hjelmstedt explained in the letter “identifies missed revenue opportunities on YouTube“.

Utopia’s Enhance tool, meanwhile, aims to “help improve music data”, wrote Hjelmstedt, adding that “at the core of everything, we have the Utopia Platform – a unique data tool that collects data, sorts data, and pays royalties”.

He claims in the letter that “Through our distribution companies we already represent 97% of all UK labels, including all the majors.”

“With the continued support of our shareholders, we can strongly position Utopia to take the company into profitability and continue scaling up to bring maximum shareholder value.”

Matias Hjelmstedt

Added Hjelmstedt in the shareholder letter: “With the continued support of our shareholders, we can strongly position Utopia to take the company into profitability and continue scaling up to bring maximum shareholder value.

“It is Utopia’s board of directors’ strong belief that this raise, this opportunity, should be awarded to our shareholders who already believe in Utopia.

“I hope that you all see this for the opportunity that it is and hope for your continued support through this option program so that we can focus on bringing great value to you, our shareholders, in the future.”

This news follows a report from news outlet Breakit last month, which revealed that Utopia’s Swedish company is carrying a substantial unpaid tax debt, as employees in the region claimed their pension premiums (and in one case, even their salary) have gone unpaid.

MBW asked Utopia for a comment about the situation with its company and employees in Sweden at the time.

A spokesperson told us on March 30: “Utopia has grown extremely fast in two years. Our Swedish entity alone grew 5x in employees, which is one out of several of our development offices.

“We handled more than €300 million last year, and continue to grow very fast. Now we’re adapting our organization to market shifts to ensure that we can continue to evolve our business in a sustainable manner.

“All payments mentioned in the post have already been identified and are being resolved. We have set up processes and structures to ensure that this won’t happen again.”Music Business Worldwide