May 8 (Reuters) - Social media music company Smule has raised $54 million in a financing round led by Chinese technology giant Tencent Holdings Ltd, which it will use to fuel international growth, the company said on Monday.
The deal will help San Francisco-based Smule expand its foothold in Asia and puts it on course for an initial public offering that could come as soon as within the next year and a half. Only a third of its users are in North America.
“We’ve seen significant growth in Southeast Asia in the past few years,” said Smule Chief Executive Jeffrey Smith. “(The region) is very important to the future of the internet, and we want to leverage some of the work that Tencent has done in China.”
Tencent was joined by existing investors Adams Street Partners and Bessemer Ventures in the fundraising round, which gave Smule a valuation of $604 million, a source familiar with the situation said, requesting anonymity as the company’s finances are private.
Tencent, best known for its WeChat mobile app, has pointed to growing its digital music business as a key strategic initiative. Last year, it took a majority stake in a new venture that combined its digital music business with China Music Corporation, China’s leading music-streaming business.
“We are confident that our investment in Smule will further strengthen our position to capture the promising potential in the digital music market,” Poshu Yeung, Tencent’s vice president of international business, said in a statement.
Tencent’s Southeast Asian network will be key as Smule looks to increase its share of the growing mobile user base in the region, already home to 40 percent of Smule’s users. Smule will use the funds from the round for marketing and to build out its international infrastructure, including data centers.
Some of Smule’s largest competitors are based in Asia, such as China’s ChangBa and Tencent’s own WeSing.
Smule, which had $101 million in revenue last year, has 52 million monthly active users.
The application allows users to record and layer on duets with singers such Ed Sheeran through its flagship app Sing! Karaoke. Artists upload their audio onto the platform to interact with fans and promote their music.
After artist Luke Bryan posted a Smule video duet with fellow singer Jason Derulo of the song “Want To Want Me,” it doubled its sales for the week.
Reporting by Lauren Hirsch in New York; Editing by Peter Cooney