CHAPTER 11

Spotify, Stockholm, 2018

By March 2017, McCarthy had done enough research and spoken to enough people both inside and outside Spotify that it was time to officially run his direct listing idea by the board and hear official pitches from investment banks. Company executives and directors convened in a boardroom in the New York office to hear investment banking pitches from Goldman Sachs, Morgan Stanley, and Allen & Co.

Though McCarthy had already briefed Spotify’s directors on his plans, he now gave a presentation titled “Why do a direct listing?,” and walked the board through his thought process. Most importantly, he showed the board that he had full command of the issues and planned to stick to his convictions. “I’d been pretty clear about my preferences,” McCarthy said later. “If they had thrown up roadblocks, the conversation would have gone the other way.”

Both Morgan Stanley and Goldman Sachs had done work stress-testing Spotify’s plans. Kwan and Grimes presented for Morgan Stanley. Representing Goldman were Lemkau; Nick Giovanni, head of technology banking; and David Ludwig, co-head of equity capital markets. Allen & Co.’s Harry Wagner and Ketan Mehta were there, as were bankers from JPMorgan.

When it came time for Goldman to present, the firm’s bankers showed McCarthy and the board that Spotify could get what McCarthy wanted within the traditional IPO structure—that they could reduce the friction of the IPO enough to meet the company’s objectives. On one slide, the bankers compared the direct listing as it was taking shape with a traditional IPO, and showed how one could be made to look more like the other. There and elsewhere, they listed a number of options. If Spotify wanted to pursue a traditional IPO, the company or its investors could sell a small amount of stock—not enough to dramatically shrink the holdings of existing investors. The company could introduce a flexible lockup structure, giving employees and shareholders a way to sell their shares before the customary 180 days enshrined in the language of every IPO prospectus. And McCarthy could be thoughtful and transparent about how he provided guidance.

The Goldman bankers admitted that it would likely be impossible to get away from the “discount on discount” theater that so annoyed McCarthy—giving watered-down projections to analysts who watered them down even more before showing them to investors. The bankers acknowledged that what McCarthy had in mind could work, but that the bank leaned against advising it. If Spotify chose to go the direct listing route, there would be a number of risks that would need to be mitigated. Their message: A company only gets one shot to go public. Don’t risk it.

The Morgan Stanley and Allen & Co. bankers also presented, offering their own take on the process then taking shape.

The board debated the idea. Those who still had a significant investment in the company didn’t want to be forced to sell in an IPO. They thought that there was still a lot of growth left in the company’s model and liked the fact that they wouldn’t be diluted by new investors in an IPO. While other board members without a significant investment came from a different place, few felt the need for the company to sell new shares or raise more capital.

“Why should we then have an artificially constructed event that only serves to give the twenty largest institutions that always get allocations some benefit just because they are the twenty biggest institutions,” Pärson said of the board’s thinking. Nonetheless, the board did have concerns. “It was controversial, because the only direct listings that had been done had been former Chapter 11 companies coming back to the market,” Pärson said. “It was seen as not a particularly kosher way of doing things.”

Directors also considered two other outstanding questions. First, how would the market go about finding a price for Spotify’s shares if it didn’t have the traditional IPO process to sound out investors? “The price discovery process was a very, very well-known process in the IPO, but in a direct listing, you had to basically invent that,” Pärson said. If that didn’t go well, the stock price could whip around dangerously. The board questioned “whether the volatility would be massively problematic for the company, for instance, that the shares would pop far too much,” he said.

Second, would Wall Street punish Spotify for its act of defiance? “That was the worry, that we would have the establishment against ourselves… which would create a bad name for the stock in the minds of the investors,” Pärson said. “That was the biggest concern I think we had.”

At least one board member didn’t care too much about that: Lorentzon, the tough-talking negotiator who enjoyed taking a stand. “Martin really liked the idea to screw the banks, early on,” Pärson said. “I think he was instantaneously supportive of the idea.”

Ek, too, liked the idea of doing something different. “Since Daniel was so positive and Martin was so positive, it was more about how,” Pärson said. “And the hows were, of course, they were a lot of different things: How should we work with Goldman, how should we go work with Morgan Stanley? What should the advisors be doing?”

At one point during the session, a small stack of pitchbooks sat piled on the table in front of Ek. At the very top rested a pair of handmade blue sneakers, a gift from Kwan, who had given Ek a similar pair of baby shoes years earlier when he was trying to get close to the founder.

With the sneakers overlooking the proceedings, the founders’ support ultimately swayed the rest of the room. Spotify’s board signed off on going forward with the direct listing. McCarthy would get his wish.

“There was probably a little bit of the innovator’s ego on behalf of Barry,” Pärson said. “He wanted to be the innovator. And I think he pushed this and, using his enormous credibility with the financial market then and his past with Netflix, [which] was just soaring at the time, to say that this is the way we should do it. He had so much brand equity that he got away with it.”

Spotify chose Goldman Sachs, Morgan Stanley, and Allen & Co. for its bankers.

Around that time, McCarthy and Spotify’s general counsel Horacio Gutierrez began sounding out law firms as well.

Sanchez and Saper pitched the Spotify team. By then, McCarthy and Gutierrez had grown frustrated with Wilson Sonsini’s performance. They weren’t getting enough attention from the firm or from Sanchez himself. McCarthy went behind Sanchez’s back and sent an email to another Wilson Sonsini partner. The legal team is frustrated, he suggested, and Wilson Sonsini might need to get some more help.

That email was the last straw for Sanchez. Fed up with an inability to get the resources his clients were expecting, he left for Cooley LLP. Shocked colleagues got notice of his exit in a surprise late-night email. (Over the next two years or so, nearly four dozen Wilson Sonsini lawyers would join Cooley.)

Gutierrez also heard pitches from other law firms, including Latham & Watkins. Dagmara Jastrzebska, a Spotify attorney who joined the firm in January 2016 from Latham, had worked for Latham partner Greg Rodgers. Jastrzebska had wanted Latham to get a chance at winning the earlier work that Wilson Sonsini did, but she wasn’t established at Spotify long enough to bring the company in for the work that Wilson ultimately won with their pitch. This time, Jastrzebska got her wish when Gutierrez hired Latham.

With the banks and the lawyers on board, it was time to hold the organizational meeting to get everyone on the same page. On May 3, bankers from Morgan Stanley, Goldman Sachs, Allen & Co., and Rodgers’s team at Latham returned to Spotify’s offices for the “Project Polaris” startup meeting. Grimes and Giovanni presented the timeline and some high-level thoughts about how they expected the transaction to come together. Though there were half a dozen or so workstreams that came out of that meeting, there was a lot resting on how securities regulators received the proposal. Rodgers spoke up. “We should request an in-person meeting with the staff and go down and engage with them so that we don’t spin our wheels on a structure that ultimately ends up not working,” he said, according to a person who was in the meeting.

Walking out of that meeting, everyone knew that the reception at the SEC would be critical.

Spotify would have to persuade senior officials at the agency who were just starting their positions. One was William Hinman, the attorney who had worked for Morgan Stanley and Credit Suisse on the Google transaction and had since worked on some of the largest IPOs in history, including Facebook’s and the 2014 offering from Chinese e-commerce company Alibaba. Most importantly, Hinman was the incoming director of the SEC’s Division of Corporation Finance, one of two offices at the agency involved in IPOs. Hinman was well known to the bankers and lawyers working on Spotify’s transaction.

Hinman had been appointed by the incoming chair of the SEC, Jay Clayton, a longtime mergers and acquisitions lawyer at Sullivan & Cromwell with clients like Goldman Sachs. On May 9, the SEC put out a press release announcing Hinman’s appointment. “He has spent the last 37 years working in our public and private markets, and he understands the SEC’s mission to promote capital formation while ensuring that investors have the information necessary to make informed decisions,” Clayton was quoted as saying in the release.

The presence of Clayton and Hinman meant that Spotify’s innovative approach would be reviewed by two attorneys with decades of experience in transactions like IPOs. Under SEC rules, only wealthy individuals were allowed to participate in the private markets. And both men were eager to encourage more companies to enter the public markets, where their stock could be purchased by Main Street citizens seeking attractive investment returns. In the five years prior to Spotify’s proposed listing, due to the trend of technology companies staying private for longer, it had been wealthy investors and institutions who had benefited from the massive growth in technology companies.

In his first speech as SEC chair, at the Economic Club of New York on July 12, 2017, Clayton told a crowd of bankers and corporate executives that he was focused on fostering capital formation in the public markets. “Evidence shows that a large number of companies, including many of our country’s most innovative businesses, are opting to remain privately held,” Clayton told the assembled crowd. “I believe we need to increase the attractiveness of our public capital markets without adversely affecting the availability of capital from our private markets.”

It would become a key theme of his three-and-a-half-year tenure.

As Clayton and Hinman settled in at the SEC, Spotify executives and their bankers and lawyers prepared for their first meeting with the agency. In advance of the meeting, Grimes called Hinman to brief him on the upcoming meeting and Spotify’s plans in what one member of Spotify’s deal group called “back-channel talks.” On the appointed day in July, McCarthy and Gutierrez awoke early to board an Amtrak train to Washington, DC, for their first meeting with the SEC. McCarthy ditched the jeans and Robert Barakett t-shirt that had become his professional wardrobe at Spotify for a more formal look. He put on a pressed white shirt, a blue suit, black shoes, and a tie. Since his days in boarding school, where he wore a coat and tie six days a week, McCarthy had been particular about how he presented himself. “It wasn’t a big reach,” he said later. “I’d grown up in that world on the East Coast.”

The Spotify executives had spent hours with Latham & Watkins and Morgan Stanley’s lawyers going over the script for the meeting—what they were going to say and who was going to say it. The meeting would be a high-wire act—there was no room for misstatement with securities officials in the room. This was showtime.

When the train reached Washington’s Union Station, McCarthy and Gutierrez made the ten-minute trip across town to Latham’s office, at 555 Eleventh Street NW, where their lawyers had assembled for a pre-meeting briefing. Then they headed back to Station Place, where the SEC’s imposing glass and granite home was attached to the train station.

McCarthy, Gutierrez, Rodgers, additional Latham lawyers, and Morgan Stanley lawyers Steven Brown and John Faulkner filed into a nondescript conference room to meet with Hinman and his colleagues at the agency. The meeting began with Spotify’s side introducing itself. McCarthy gave a high-level overview of the plan, but it wasn’t long before he was relegated to listening to lawyers talk about the nuances of securities law.

Spotify told the SEC that it intended to conduct a transaction governed by the 1934 Act. Doing so would mean that the company would not file an IPO registration statement required under the 1933 Securities Act for companies issuing new shares. Such a filing would subject a company to liability if investors who think they have been misled want to later sue.

The lawyers ran down a list of reasons why they thought their plan was the right way to go. It would be a non-event from an offering perspective, because Spotify wasn’t selling new shares. As they imagined it, they said, it would be very similar to a spinoff or a company emerging from bankruptcy.

McCarthy emphasized his desire to hold an investor day, broadcast on the internet, and to issue guidance, the practice of telling investors what they should expect in the next few quarters. Both ideas were central to his idea of bringing radical transparency into the process.

It wasn’t long before Hinman put a stop to that talk. “We don’t think this is like a spinoff,” he said, according to the recollection of one of the attendees.

Hinman knew that there was a lot of money available to tech companies in the private markets. If the SEC allowed Spotify to completely bypass the due diligence, investor education, and legal responsibility associated with having to file an IPO prospectus, he worried that there would be a rush of companies using the process to avoid SEC investor-protection rules.

Hinman also believed that what Spotify was doing looked enough like an offering that the company might be subject to later legal issues even if it hadn’t put out a prospectus. The SEC’s point was that the investor education piece looked an awful lot like the company encouraging investors to buy the stock, even if it wasn’t Spotify’s to sell. It looked enough like an offer, in other words, that Spotify should submit a 33 Act filing. The agency’s insistence was strong enough that Spotify somewhat quickly acceded to the demands of Hinman and his team and agreed to register its shares under the Securities Act of 1933. McCarthy preferred the 34 Act because it would allow him to release guidance and educate investors using the best practices of public companies, but he wasn’t going to fall on his sword in the face of SEC opposition.

The SEC ultimately allowed Spotify to issue financial guidance outside the confines of its registration statement.

Over the back half of 2017, Spotify and its advisors worked with the SEC to iron out other mechanics of the transaction. With the chief concern of the Division of Corporation Finance out of the way, the company and its lawyers pivoted to working with the Division of Trading and Markets.

That division is more focused on exchange rules and the regulations that govern how companies can behave regarding their public stock. The division oversees Regulation M, which is intended to prevent market manipulation in the trading of shares. Over several months, Spotify worked with the agency to ensure that it wouldn’t violate the regulation.

As the lawyers hashed things out with the SEC, the NYSE, Morgan Stanley, and Goldman Sachs talked through how Spotify’s shares would begin trading. One option was to simply let it happen as soon as stocks started trading at 9:30 a.m. Another was to treat the direct listing more like an IPO, whereby the shares are held back from being released for trading until there is a suitable number of orders built up that will serve as a dramatic pricing event to set the stage for a smoother trading experience.

Goldman Sachs’s Benny Adler, a senior trader with decades of experience, felt strongly that the direct listing should use the latter approach. Adler had seen stocks in the over-the-counter market move to exchange trading on NASDAQ. They just started trading in the morning, regardless of the size of the trade, and often struggled to find a rhythm.

“‘Let’s not do that,’” Adler later recalled telling exchange officials. “‘Let’s halt the stock and not allow any trading until that first trade. Let’s run an auction.’” The exchange, he said, “agreed that creating a big liquidity event was: a) going to be beneficial to new investors and b) was going to create a much, much more stable stock coming out. And ultimately make the product more attractive to issuers.”

Adler’s counterpart at Morgan Stanley, John Paci, also contributed to the discussion.

With the transaction coming into focus that December, Spotify asked Goldman Sachs to broker the sale of a large block of stock. The company wanted a sale to set the price in the private market—which it could use to guide public market investors when it came time to list the shares.

Separately, Spotify had long wanted a strategy for expanding into China so that it could participate in streaming music’s rise in the world’s second-largest economy.

In December, Goldman Sachs delivered on both initiatives, arranging for a share swap with China’s Tencent Music Entertainment Group. Tencent would receive a 7.5 percent stake in Spotify, which would take a 9 percent stake in Tencent in return. Spotify also used the transaction to renegotiate the convertible bond terms. They were tied to an IPO that wasn’t going to happen and represented a potential legal headache that could hang over the direct listing.

On December 18, having worked out most of the mechanics of the offering, Spotify confidentially filed its draft registration statement with the SEC.

On January 8, 2018, two executives at trading firm Citadel Securities braved the freezing temperatures and fifteen-mile-an-hour winds whipping around the Freedom Tower in lower Manhattan as they made their way to Spotify’s relatively new offices. The company had outgrown the Sixth Avenue location and signed a lease for three hundred seventy-eight thousand square feet at 4 World Trade Center the previous February. McCarthy had been surprised to find a good deal downtown.

Spotify hadn’t yet expanded into all the space McCarthy had signed. The floor felt cavernous as he and Vogel hosted a series of meetings to try to select the companies that could open Spotify’s shares for trading on the NYSE. With the company eschewing a traditional IPO, the choice of what was known as a designated market maker (DMM) was an important step in completing a successful offering.

Designated market makers are the trading firms and their employees who work on the floor of the exchange and manually open and close the trading of company stocks. Citadel Securities was owned by billionaire hedge fund manager Ken Griffin, whose own fund was also named Citadel. The two separate businesses often got confused with each other. Citadel Securities was somewhat new to the designated market maker function, having gotten into the business in late 2016 with the acquisition of another firm that had a large presence on the floor of the NYSE. They were looking for ways to advance on the leader, GTS.

There to pitch Spotify was Citadel Securities’ Joe Mecane, Peter Giacchi, and two colleagues. McCarthy and Vogel represented Spotify. Over the course of the meeting, Mecane and Giacchi explained how winning the right to open Spotify’s direct listing was incredibly important to the growth of their business. The Citadel Securities executives had researched what they could about the direct listing rules as recently put in place by the NYSE and approved by the SEC. The two men told the executives that what they were doing brought risk, and that to avoid embarrassing themselves they should be looking for a partner who could provide the right kind of support. They impressed upon McCarthy and Vogel the fact that they were committed to making the opening of shares work and that they would use their balance sheet to whatever extent was necessary in order to ensure that it went smoothly.

McCarthy and Vogel asked the executives what they should be thinking about around the direct listing. What would still need to be figured out over the next three months? Citadel Securities brought up one question: “Will there be an ability for people to short the direct listing right out of the gate?” a member of the team asked. In other words, could traders bet on the price of Spotify’s shares declining the moment they started trading, or would there be some delay?

The question was a new one to the Spotify executives, and they were impressed that Citadel Securities had raised it. “That’s a really good question,” McCarthy answered. “How come no one else has asked us that question yet?”

The meeting continued until it was time for the Citadel Securities team to leave. When the executives arrived on the ground floor, they saw their competitors at GTS across the lobby waiting to go up. They knew now that this was a real competition. In the days following the meeting, Ken Griffin himself reached out to McCarthy to drive home the point that this was a transaction that Citadel Securities wanted to win.

In the end, Spotify selected Citadel Securities, believing that because the latter wanted the business badly, they would give it the highest level of attention. Over the following months, Spotify and Citadel Securities worked out the details of how the stock would start trading on the exchange. The stock would open just as it did with the release of an IPO, but it would be more difficult to find an equilibrium price since there wouldn’t be a price from the night before.

McCarthy met with Griffin, and the two men had several subsequent conversations, including some that took place on Saturday nights. “That guy is a workaholic,” McCarthy said later. “There is no detail that escapes him.”

By then, Goldman Sachs and Morgan Stanley had been working on the transaction for more than six months. But Goldman’s longer relationship with Spotify—tracing back to the London meeting between Lemkau and Ek several years before the 2015 fundraising—earned Goldman the lead mandate.

McCarthy broke the news to Kwan and Grimes. Morgan Stanley, which had taken Spotify rival Pandora public, was the relative newcomer, but it had dug deep on what McCarthy wanted to accomplish. The CFO said simply, “Look, Goldman’s been here for a lot longer. There’s a longer relationship—we’re going to have them involved.”

He added, “We want you involved. What do you want in this transaction?”

Morgan Stanley had come to believe that advising the designated market maker was a critical role for the success of the transaction. “We think the most important role is the advisor” to the DMM, the bankers told McCarthy. “We’ll take that role.”

If Spotify wanted to pay Goldman a little bit more, Morgan Stanley said it wouldn’t fight it. “We understand we’re not Daniel’s… banker that’s been there for them in the trenches,” they told him.

Adler had argued that both banks should have a say in advising Citadel Securities, but he was eventually overruled by exchange officials who didn’t want too many voices to complicate the opening trade. “There were three banks that put a lot of analytical power behind this,” Pärson, who left the board the previous summer, said. “I think they realized that they needed to have their fingerprints on this landmark event in order to at least have some way of describing it. I thought that they would be much more passive than they were, but they saw how committed, I think, the company was to this idea. Then they decided, though, that we can’t beat them, [so] let’s join them.”

Spotify filed its registration statement with the SEC on February 28, 2018, making its direct listing plans official. The bank named Goldman Sachs first and said that Morgan Stanley would advise the designated market maker.

On March 15, hedge fund traders, portfolio managers, and Wall Street analysts lined up outside the steel-and-glass entryway of Spring Place, a trendy performance space in New York’s Tribeca neighborhood. Many had come from as far away as continental Europe and Los Angeles.

Besides the clothing of the people in line—many dark vests over dress shirts—there wasn’t much to distinguish the event from a fashion show or an art fair other than a roughly three-foot-high sign made of white letters. It read “Spotify.”

Spotify’s investor day had finally arrived, and the music company had pulled out all the stops. There was a palpable energy in the line as the analysts and investors waited to show their identification and have their name checked against a list. Excitement for the event had turned it into an exclusive affair—Spotify had to turn down requests to attend.

The guest list was a who’s who of influential technology analysts and investors: Goldman’s star internet analyst, Heath Terry; Scott Devitt, the former Facebook analyst at Morgan Stanley; and Justin Post, Bank of America Merrill Lynch’s internet analyst. Chase Coleman, the founder of Tiger Global Management, which had invested more than $600 million into Spotify, and Lee Fixel, one of his top technology investors, attended with two analysts. Tiger Global’s initial investment came from working alongside G Squared to scrounge up shares in the secondary market.

McLeod attended for G Squared, as Aschebrook was out of the country, and sat beside the contingent from Tiger Global.

After passing through security, the attendees helped themselves to coffee or sparkling water as carefully curated Spotify playlists played through hidden speakers and trays of hors d’oeuvres were passed around. Beyond the lobby, a large room with plate-glass windows offered a commanding view of the surrounding city. Modern white chairs lined up in rows. A small half-moon-shaped stage stood at the foot of a massive screen.

Spotify had been planning this event for months. Its executives—as befitted a music streaming company—wanted to do something more than a typical investor day hosted in one of Manhattan’s midtown hotels, like the Mandarin Oriental, where Snapchat had held its IPO roadshow the year before. In a significant departure from the norm, the presentation would be livestreamed on Spotify’s website so that any member of the public—not just institutional investors with an inside track—could learn more about the company’s business and financial condition.

Once everyone was seated, Paul Vogel, Spotify’s investor relations chief, opened the event. Casually dressed in jeans and an untucked dress shirt with sleeves just a touch too long, Vogel elicited polite clapping. Someone hooted. Vogel welcomed the crowd to the company’s investor day, reading from a teleprompter as the screen behind him shone with the distinctive green shade of Spotify’s logo and his title in white. As he rocked from one foot to the other, he explained why the company had chosen to do a direct listing: they wanted to be more transparent and accessible to a broad swath of investors. “We believe hosting an investor day prior to our public listing,” he said, “will do just that.”

Vogel shared two dates with the audience: Spotify would announce financial guidance on March 26, and its stock would start trading on April 3. As he wrapped up, he made a joke about the SEC’s safe harbor provision, which protects a company from being sued by investors if it meets certain conditions. For several moments, soft string music played as Vogel gave investors a few moments to read over the lengthy disclosure.

Once Vogel had left the stage, CEO Daniel Ek bounded onto the stage to electronic music and greeted the crowd with a big smile. Ek, bald, with a thin beard, wore a black blazer over a white t-shirt, black jeans, and bright white sneakers.

The founder began with a modest opening, his voice toned down despite the event at hand. In English accented by his upbringing in his native Sweden, Ek, like Vogel, read from a teleprompter. He warned the crowd that it shouldn’t expect any parties or figure on seeing executives ringing an exchange bell. The reason, he said, was that going public was never about pomp and circumstance.

“The traditional model for taking a company public just isn’t a good fit for us,” Ek explained. Spotify didn’t agree with the lockups that most IPOs require, because people were its most valuable asset. They should be able to sell their shares when they wanted, he said. So the most important day for Spotify, he said, was not the listing day but “the day after that, and the day after that.”

Ek then explained that while he was more a fan of soccer than baseball, Spotify was in just the second inning of its business life cycle. The baseball analogy is one often used in the financial industry. As Ek moved into a brief history of Spotify and how he had come to invent the company, a photo of Stockholm’s harbor flashed on the screen behind him.

Nineteen minutes after the program began, Ek handed off to Spotify’s chief R&D officer, Gustav Söderström. He was followed by Seth Farbman, chief marketing officer. A short intermission followed Farbman’s presentation. The crowd was buzzy, impressed by Spotify’s music industry credentials and the cultural hipness that accompanied it. When Ek returned to the stage after the intermission, he did so without his blazer. Charlie Hellman, head of creator marketplace; Troy Carter, global head of creator services; Alex Norström, chief premium business officer; Danielle Lee, global head of partner solutions; and Brian Benedik, the global head of ad sales, followed him in their talks.

“It was impressive,” one investor in the audience said later. “They are clearly a very strong team.” He continued: “There was a lot of excitement in the air… a lot of energy. They tell a very good story about the music in people’s lives.… This was not a quarterly story; this was a change-the-world story.”

One hundred nine minutes into the recorded event, it was time for McCarthy to speak. The CFO was nervous. This would be the first time he’d spoken publicly since leaving Netflix nearly eight years earlier. Appearing in front of employees or another friendly crowd was easy. He could relax, crack jokes, and act spontaneous. But speaking in front of a large crowd of investors was something else.

McCarthy hadn’t had time to practice his presentation, and he hadn’t had time to iron out the kinks. Ordinarily, he liked to practice. When he was preparing to take Netflix public in 2002, he and CEO Reed Hastings had visited multiple cities making presentations. They had started in New York, where it was clear to those in the audience that their presentation needed help. McCarthy was so nervous at one point that one of the Merrill Lynch analysts had asked him if he needed a moment alone. By the time the Netflix executives returned to New York, they were able to give a seamless presentation in the ballroom of the Pierre, a hotel across the street from Central Park.

Now, as upbeat music played over the speakers, McCarthy walked onstage to a packed house. He knew many of the people sitting in the white chairs in front of him—big investors and analysts from Tiger Global, Goldman Sachs, and elsewhere.

McCarthy wore a pink dress shirt and a dark suit jacket over jeans and loafers, the buttoned-up CFO presenting a contrast with Ek, the hip founder. Whereas Ek could have been the star of the show at a music event, this, after all, was a day for investors. Their star was McCarthy.

“Good afternoon. I’m going to bring it home here for us,” McCarthy said, sounding slightly breathless. He smiled to scattered laughs from the audience. “I know you’re all disappointed to hear that.” As he previewed what he would cover, he mentioned that since he’d left his last company, Netflix, its stock had risen nearly ten times. So, he joked to those in the room, they should ask themselves if they should buy Spotify’s stock the following month when it became available or wait until he retired. McCarthy received more laughs from the audience and appeared to relax a little.

Launching into his slides, he told the audience that they should expect the company to continue spending more than it brought in to fuel growth. It was a characteristic admission from McCarthy—he wasn’t going to sugarcoat the company’s cash needs.

Spotify’s gross margin, though, had improved for three straight years since McCarthy had taken over. In 2016 and 2017, he’d helped negotiate new deals with the record labels that were more favorable to Spotify. It wasn’t a “magic trick,” he said, it was the record labels acting in their own self-interest to support Spotify’s economic model because of its growing importance to the music industry.

McCarthy likened Spotify’s improved results to those from his first ten years at Netflix, when the company went from a negative gross margin to a strongly positive one as it grew larger. Scale, as he called it, coupled with data insights and a better user experience, propelled Netflix’s growth. What Netflix did, he explained, was come to own demand creation—which kept users coming back to the service, because it continued to serve up new and interesting content. Spotify was beginning to do the same, he suggested.

Investors had come to depend on McCarthy’s straightforward approach, and he didn’t disappoint. “Becoming the world’s largest global music streaming subscription service has been expensive, costing more than a billion euros”—he emphasized the B—“in cumulative losses,” he said. “But the trend toward profitability is clearly apparent.”

After a slide heavy in technical finance, McCarthy explained that while he had joined Spotify as an investor and then sat on the board, it wasn’t until he got into the CFO’s chair that he realized the power of the company’s ad-supported tier. Known across the industry as freemium, Spotify used it to attract a large and engaged user base with free services. The company then hoped to persuade those users to pay for the premium subscription product.

By then, many internet businesses had embraced the model to acquire paying subscribers, and most of Wall Street was aware of its value. McCarthy addressed that point quickly. “So now some of you are looking at me like, Okay, dude, are you kidding me?” McCarthy joked, briefly stumbling over his words, “which in New York–speak roughly means ‘Are you stupid?’ And the answer is yes and nope, it just took me a while before I realized the ad-supported service is also a subsidy program that offsets the cost of new subscriber acquisition.”

When he got to a slide with a lot of acronyms, he slowed down. On another slide with a confusing chart, he explained the takeaways by listing them, by number, for investors. He gave the audience a clinic on how scale mattered in the industry, using an example of a fully developed company competing with one that was younger in its life cycle. To help explain it, he gave himself the role of the younger company. In the language of financial metrics that so many of the audience understood, McCarthy patiently explained why the more mature company should win every time. To accentuate the point, he said bluntly that the mature company should “beat me like a drum.” He came back to the joke after another example. “Not only can you beat me like a drum, but your drumsticks cost less than mine.” The audience laughed.

McCarthy wrapped up the presentation by welcoming Ek back to the stage for a few minutes of Q&A.

If the analysts and investors in the audience thought that the event was over when Ek ended his Q&A, they were mistaken. Charlie Puth, the singer-songwriter who had gotten his break as a Berklee College of Music student by uploading song videos to YouTube and had gone on to pop stardom, was there to play for the assembled crowd. When Puth walked onstage, he congratulated Spotify on its “IPO.” Kwan, the Morgan Stanley banker, yelled out, “No! It’s a direct listing.” Some of the crowd got up and danced.

At the end of Puth’s set, Spotify’s executives mingled with the crowd. Ek and McCarthy spoke to McLeod and thanked him for G Squared’s early support of the company.

Another member of Spotify’s team roamed around and asked various individuals what they thought. He was surprised to find that people who were usually cynics, hard-nosed analysts and investors, had been won over by the production.

“That,” said one, “was a great show.”

It was just a few weeks later, and Peter Giacchi was fired up. As he walked to the NYSE with one of his senior Citadel Securities traders on the morning of April 3, he saw a black banner draped across the marble facade overlooking Broad Street. In green letters, “Spotify” towered over the street below.

Giacchi, who had attended the January pitch meeting at 4 World Trade Center, was Citadel Securities’ most senior floor trader on the NYSE. He was friendly and talkative, a bespectacled twenty-year veteran. This was his Super Bowl, one of the biggest moments in his two-decade career. All eyes would be on him as he stood on the NYSE floor and collected buy and sell orders and settled on a price that wouldn’t leave Spotify’s shares changing rapidly or unpredictably when they started trading.

Giacchi wore a blue jacket with a castle parapet and his firm’s name on the back. He made his way to Post 5, one of a series of large round booths that dotted the floor of the NYSE. He peered at four screens connected to the square keyboard that he relied on every day to open the trading for specific stocks. A crude graphic on one of the screens showed buy and sell orders accumulating at specific prices. It was early, and there weren’t many orders yet.

To commemorate the occasion, Giacchi had brought a good luck charm to the pits—his mother, Rachelle, who made the trip from Florida. Rachelle was also a veteran of New York’s trading floors, having joined broker Herzog Heine Geduld as an assistant before working her way up to stockbroker.

Giacchi’s task would be tougher than usual this morning because of the nature of the direct listing. Ordinarily, investors only had to look at a stock’s previous day’s close to know the rough price at which it might start trading. Buying into a company that had gone public the night before was made easier by the IPO price, which acted as a rough gauge. But Spotify didn’t have any public trading history, and its shares hadn’t changed hands the night before in a deal with institutional investors brokered by investment banks. All Spotify had was its $132 reference price, a somewhat made-up figure based loosely on where its shares traded in the private markets. Under terms hammered out the year before, the SEC required the NYSE to come up with the reference price and furnish it to investors. Agency officials couldn’t stomach the idea of investors bidding for Spotify’s shares without something to guide them.

At 10:30 or so, Giacchi sent a message through the data feeds that connected the NYSE to the global financial markets. Known as an indication, the message gave traders Giacchi’s best guess for the price at which Spotify shares would open for trading. He updated it throughout the morning. Orders had started coming into his systems, and he sent out a wide range of $145 to $155.

Buying interest picked up. At 11:03, he sent another message; this time Spotify’s price was in a range of $150 to $160. He raised the next indication to $155 to $165. The price was marching higher as demand for the shares outstripped supply.

Four miles north of Giacchi’s trading booth, Morgan Stanley trader John Paci presided over a portion of Morgan Stanley’s trading floor on the fifth level of the bank’s corporate headquarters above Times Square. Paci was the senior trader at Morgan Stanley charged with helping to open the shares of popular companies entering the public markets for the first time, a job that often required hours of juggling phone calls and electronic messages in order to match supply and demand. As the advisor to the designated market maker, Morgan Stanley would play an outsized role in helping to set the price of Spotify’s shares.

Paci was well suited to the job. He was a former National Football League quarterback with the New York Jets who had multiple phone lines and a group of traders lined up along three rows of desks that ran perpendicular to his in a formation that looked like a capital E turned on its side.

For Spotify’s direct listing, Paci’s task was to collect the sell orders coming from the company’s employees, venture capital backers, and other shareholders and match them with the orders he received from mutual funds and hedge funds wanting to buy in for the first time. The task wasn’t easy—every time a large buy order came in at a particular price, he would have to call selling shareholders to see if they wanted to sell at that price. Every time the price moved, Paci would have to alert both sides. Once he collected the orders, Paci communicated those to Giacchi on the floor of the exchange, where the Citadel Securities executive used them to arrive at a price that roughly matched the two sides of the market. The two men would engage in a tense act that morning to arrive at a price for which many buyers and sellers would agree to exchange Spotify shares.

That morning, Kwan also received a text from TCV partner Woody Marshall, a member of the Spotify board. Marshall wanted to know where the stock might open and close; the folks at TCV had a friendly wager going about Spotify’s stock performance. What did Kwan think?

Kwan knew enough to know he wasn’t the expert. He turned to Ashley MacNeill, Morgan Stanley’s head of the technology equity syndicate for the Americas. Where is this going to open and close? he asked her. MacNeill had been talking to Spotify investors for weeks, judging their interest in selling the stock. She’d also been talking to other investors and felt confident that she had a handle on the forces of supply and demand.

“One sixty-five and one fifty,” she answered.

Kwan shared MacNeill’s prediction with Marshall. Colin Stewart, the banker who worked on Google’s IPO and was now a vice chairman in capital markets, guessed $162 and $160.

For weeks, Spotify had said that it wasn’t going to make a big deal of the direct listing. Ek had said at the investor day that executives wouldn’t ring the NYSE’s opening bell. A plan to hire a choir, recommended by NYSE officials, fell through. Spotify wanted employees to think that this was just one day on a long journey, not a destination. There was still a lot of work to do.

McCarthy and Vogel made plans to visit Morgan Stanley’s trading floor instead. Late that morning they left their World Trade Center headquarters for the subway ride uptown to Morgan Stanley. The executives arrived and joined about a dozen Morgan Stanley bankers gathered around Paci’s desk.

Both executives were nervous. McCarthy had been working on the transaction for two years, putting his reputation on the line at critical moments to move it along. An opening trade featuring wild price swings would play into his board’s doubts and cast a pall over his creation.

The group around Paci’s desk could hear him talking to investors wanting to buy stock and shareholders looking to unload it. He and his traders shouted orders back and forth. Paci propped a phone cradle on his shoulder as he typed commands into his computer.

At 11:32, Paci received a new notification from Giacchi, who had noticed a stabilization in price and narrowed the range to $5. The next indication went out at $160 to $165. A surge in demand to buy shares came in, forcing Giacchi to raise the next indication to $165 to $170.

Giacchi tightened the next indication, narrowing the range to $167 to $170.

As the range narrowed, the energy on Morgan Stanley’s trading floor picked up. The crowd around Paci’s desk pressed in.

And then more shareholders offered to sell their shares. Giacchi lowered his next indication to $165 to $168. The tension fell.

More buyers came in. And then sellers. Giacchi sent a couple more indications, bumping the price between $170 and $165.

For fifteen or twenty minutes on the floor of the NYSE, Giacchi didn’t update the range. He prepared to open the stock. As he hunched over his screens, a crowd built up. A photographer directly in front of him prepared to take a shot.

NYSE president Tom Farley was right behind Giacchi, wearing a bright red tie. “We’re ready to go. Here we go,” Farley said. Stacey Cunningham, the NYSE’s chief operating officer, was there too.

But this was Giacchi’s show. “Guys, sixty-five.” He had to shout to be heard above the chatter of brokers as camera shutters clicked. Giacchi peered in close at his screen to make sure he had the number right. “Guys, sixty-five ninety. Guys, sixty-five ninety.”

He stood. “Guys, the book is frozen,” he hollered into the crowd, chopping his hand in the air. He would take no more orders. The price was fixed. He called out the stats: “Five point six million opens here at one sixty-five ninety.” Five point six million shares traded hands at $165.90. A person in the background whispered, “One sixty-five ninety.” “Yay!” someone else yelled.

Those closest to Giacchi could see the all-important light blue key in the bottom right of his keyboard. The one with the four simple letters: “D-O-N-E.”

Another Citadel Securities trader hit it. Forty-three minutes after noon, Spotify started trading in the public markets at $165.90 a share.

Applause erupted on Morgan Stanley’s trading floor. McCarthy and Vogel shook hands, relieved to have the stock launched into the public markets. The bankers around Paci’s desk slapped backs and shook hands.

A light mist had begun to soak New York City as McCarthy, Vogel, and a group of Morgan Stanley bankers emerged from the bank’s grand lobby. As the Spotify logo rotated with several others on the gigantic video screen on the building’s facade, the group posed for a photo before McCarthy and Vogel walked to the subway. Michael Grimes wore the equivalent of a Spotify letterman jacket, with white sleeves, a dark front and back, and the company logo.

Sometime after 2:00 p.m., the two men found themselves back at their desks in Spotify’s World Trade Center headquarters. There was no celebration for employees. The adrenaline rush of Morgan Stanley’s trading floor had faded.

Over the course of the day, Spotify’s stock price never went higher than the opening trade price, and drifted lower to close at $149.01. It was within $1 of MacNeill’s prediction.

It was also enough to give the streaming music company a market capitalization of $27 billion, seventh on the list of the biggest companies going public.

More than 30.5 million shares changed hands, or about 17 percent of Spotify’s 178 million shares outstanding. Morgan Stanley, in its role as advisor to the designated market maker, handled more than 18 million of those shares, or three out of every five traded that day. Goldman Sachs traded less than 3 million shares.

At one point that afternoon, Vogel looked at McCarthy. “What am I supposed to do now?” he asked. The two men laughed.

“I have no idea,” McCarthy answered.