Spotify is reportedly trying to raise funding at a $3.5 billion valuation. The music streaming service has blown up since expanding to the States and partnering with Facebook, but still many are skeptical with the high valuation when comparing to other services. Hulu, the U.S. TV streaming service, was going to be sold for $4 billion last fall, although they have exclusive streaming rights to many TV shows and movies.

A competitor to Spotify could therefore mimic everything Spotify is doing successfully, as well as stream the exact same content. The service is already facing competition from competing services such as Pandora, Last.fm, Rdio, WiMP, and Music Unlimited.

Spotify raised more than $100 million at a $1 billion valuation in 2011, which shows how much growth they’ve factored into their valuation. In January the company announced it had 3 million paying subscribers, with at least one million in the US. So far, the company has raised a total of $189 million to date.

It’s been since Skype sold to Microsoft for $8.5 billion that we’ve seen such large numbers thrown around in the region. We’ll stay with the story to see how their funding round progresses.