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Governance

Spotify’s founders aren’t giving up control any time soon

Spotify's co-founders are taking a page from the Google-Facebook playbook, with plans to maintain control over the music service after its stock listing by holding shares with super-voting power, according to three people with knowledge of the matter.

CEO Daniel Ek and Vice Chairman Martin Lorentzon own a class of stock that assures their hold on the company after the shares begin trading, said the people, who asked not to be identified because the terms aren't public. Another class will be tradeable by investors.

That means public investors will be able to own part of the world's largest paid music service in the next couple of months, but won't have much say about its future. Years after going public, some of the biggest technology companies, including Google parent Alphabet Inc. and Facebook Inc., remain under the control of founders who hold shares with super-voting rights.

Company founders employ so-called dual-class structures to take advantage of the perks of being publicly traded without surrendering control. Such owners can make acquisitions that dilute their economic interest without loosing their grip.

Mr. Ek, who co-founded Spotify about a decade ago in Stockholm, has looked to such companies for direction. He invited Facebook founder Mark Zuckerberg to his wedding and has publicly praised the leadership of Snap Inc., which gave its investors no voting rights in its initial public offering last March.

Robert Jackson Jr., a commissioner at the U.S. Securities and Exchange Commission, has criticized dual-class structures as unfair, and said the shares should eventually become normal.

Messrs. Ek and Lorentzon already have convinced shareholders to embrace their unconventional route to the public market. Spotify will skip an IPO. Instead, current Spotify investors will be allowed to start selling shares on the public market.

The process is risky. The company and its bankers skipped the traditional roadshow that precedes an IPO and might have less information about how potential investors will value the company.

"The biggest unknown is how the direct listing will work," Rohit Kulkarni, an analyst with SharesPost, said in an interview. "There is no formal roadshow. There is no clear setting the stage or matching supply with demand."

Investors have valued Spotify at up to $20 billion in private trades over the past several months, making the company one of the most valuable startups in the world, the people said. The secondary market was very active during the second half of last year, but has slowed as the company's public debut nears.

The music service sold a minority stake to Chinese internet giant Tencent Holdings late last year.

Spotify plans to list shares at the end of March or early April, one of the people said. The company has lifted the music industry out of a 15-year decline by convincing more than 70 million people to pay for a monthly music subscription. Industry sales have grown three years in a row, and Spotify's sales ballooned to an estimated $5.2 billion in 2017.