Music streaming service Spotify is in the process of raising an additional $500 million in funding, according to a new report. The money will be raised in the form of a convertible bond issue, but the company appears to be considering going public with an IPO sometime in the future.

The world's biggest streamer is still not operating profitably, and may need the cash to continue the battle with Apple Music, Pandora, Tidal and other competing streaming services. Competition from relative newcomers like Deezer, along with a revamped subscription version of SoundCloud is also heating up. Still, the company is reportedly not strapped for funds and is apparently raising the money opportunistically.

Instead of offering outright shares in the company to raise the cash, Spotify is offering convertible notes that will pay four percent interest, along with a discount on company shares should the company choose to go public. The discount would be 17.5 percent of the IPO price if the company goes public within a year, with an extra discount of 2.5 percent tacked on every six months thereafter.

Investors, however, don't seem to be warming to the current offering. Fears about the increased competition in the market focus on the number of new players in general, and specifically on Apple, which is big enough to use its music service as a loss leader to generate more lucrative hardware sales.

Investors also wish the offering were in the form of an equity IPO so that they can get a clear idea as to how the company's finances are looking. The general consensus by observers is that Spotify is not yet profitable, although apparently, it may be moving into the black in some of the 58 markets in which it is available worldwide.

The bond purchasers would also be taking a gamble in betting that the company will in fact go public at some future date. There's no guarantee that a stock offering will ever occur, and that scenario would make the promised discount on equity shares undeliverable.

The company has already raised over a billion dollars in investments from companies and investment funds, including Swedish wireless carrier Telia, Accel, DST, Creandum, Fidelity, Founders Fund, KPCB and Northzone, and the most recent valuation of Spotify in June 2015 was $8.5 billion. Since then, the company's user base appears to have grown substantially, with the report citing over 100 million overall subscribers, with 28 million on a paid subscription tier.

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