Substack abandons fundraising efforts as market sours

Substack, the much-hyped newsletter platform that has lured prominent writers with the promise of cashing in on their relationships with readers, has abandoned efforts to raise money after the venture investment market cooled in recent months. , according to people familiar with the decision.

Substack has held discussions with potential investors in recent months about raising $75 million to $100 million to fund the growth of its business, the people said, speaking only anonymously because the talks were private. Some of the fundraising discussions valued the company between $750 million and $1 billion, they said.

The decision is another sign of the marked change from recent years of free cash flow for young companies, particularly lively, consumer-oriented ones like Substack, which has raised at least $86 million in three rounds of funding. according to PitchBook, which tracks funding.

Now investors are preaching austerity and halting new deals, particularly for companies that spent aggressively on growth with no sign of profit. Although Substack is still hiring, other companies have dealt with layoffs or lower valuations, with some comparing this recession to the years after the 2008 financial crisis or the 2000 dot-com bubble.

A Substack spokeswoman, Lulu Cheng Meservey, declined to comment on the company’s finances or any talk of financing. She said the company was still in growth mode, pointing to a website with more than a dozen job postings, including a head of growth.

“My comment is www.substack.com/jobs,” he said.

The investment terms under discussion for Substack would have represented a jump in the valuation of the company, which was said to have reached $650 million last year after the company closed a $65 million funding round from investors such as Andreessen Horowitz.

Substack has told investors it had revenue of about $9 million in 2021, people with knowledge of the fundraising talks said, meaning the discussions valued the company at a hefty premium relative to its assets. financial results. Such a high valuation for a company with relatively little revenue was more common in the closing months of 2021, when the stock market was booming and venture firms were more bullish on startups.

The company has presented itself as an alternative to established publishers of news articles, graphic novels and books. Substack says it gives writers a fairer share of the revenue from their work. The company keeps 10 percent of the total revenue paid to writers by subscribers to its newsletters. Stripe, Substack’s payment processor, takes another 3 percent.

The company has won over influential writers, including journalists Matthew Yglesias and Glenn Greenwald, and Heather Cox Richardson, a professor of American history. Company executives have said that more than a million people pay to subscribe to newsletters on its platform and that users pay more than $20 million a year to subscribe to Substack’s 10 most popular writers.

But some writers who were initially drawn to Substack’s pitch eventually decided to leave the platform, preferring to woo their audience directly without paying the company their cut. Others were disappointed by the company’s hands-off approach to moderating content on the platform. Last month, The New York Times reported that some newsletter writers were exploring alternatives like Ghost, a platform that provides services similar to Substack. Ghost’s open source publishing platform doesn’t moderate content, but its paid hosting service does have some restrictions on content that calls for violence or breaks the law.

Substack is also facing stiffer competition from major tech companies, along with many of the media companies it seeks to compete with. Twitter, LinkedIn, The Atlantic and Puck, a startup founded by former Vanity Fair editor Jon Kelly, use email newsletters as a channel to engage and earn money from their audiences.

Substack is among a group of startups that began to thrive in the pandemic, with investors scrambling to put money into them at skyrocketing valuations. But by 2022, some of the so-called winners of the pandemic, like audio app Clubhouse or grocery delivery service Instacart, have seen their explosive growth begin to slow as people return to their daily routines.

Broader economic forces, including higher interest rates, soaring inflation and a declining stock market, compounded the gloom.

Erin Griffith contributed report.

Leave a Comment

Your email address will not be published.