Substack Drops Fund-Raising Efforts as Market Sours

Substack, the ballyhooed newsletter platform that has lured prominent writers into cashing in on their relationship with readers, has dropped efforts to raise money after venture investments for the market cooled in recent months, according to people’s knowledge of the decision.

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

The decision is another sign of the stark shift from recent go-go years of free-flowing cash to young start-ups, especially buzzy, consumer-facing ones like Substack, which has raised at least $ 86 million over three rounds of funding, According to PitchBook, which tracks funding.

Now, investors are preaching austerity and halting new deals, especially for companies that spend aggressively on growth with no signs of profits. Although Substack is still hiring, other firms have grappled with layoffs or lower valuations, with some comparing This downturn 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 financials or any funding conversations. She said the company will continue to be in growth mode, pointing to a webpage with more than a dozen job listings, including a head of growth.

“My comment is,” she said.

The investment terms discussed under Substack would represent a leap in the company’s valuation, which was said to reach $ 650 million last year after the company closed a $ 65 million funding round from investors including Andreessen Horowitz.

Substack has told investors it had about $ 9 million of revenue in 2021, with the people’s knowledge of the fund-raising talks said, meaning the discussions are valuable to the company at a hefty premium relative to its financial results. Such a high valuation for a company with relatively small revenue was more common in the latter months of 2021, when the stock market was booming and venture firms were more bullish on start-ups.

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

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

But some writers who were already won over Substack’s pitch eventually decided to leave the platform, preferring to court their audience directly without paying the company its cut. Others were disenchanted 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 similar services to Substack. Ghost’s open-source publishing platform does not moderate content, but its paid hosting service has some restrictions on content that calls for violence or otherwise breaks the law.

Substack is also facing stiffer competition from major tech companies, as well as many of the media companies it is seeking to compete with. Twitter, LinkedIn, The Atlantic and Puck – founded by Jon Kelly, a former editor at Vanity Fair – are all using email newsletters as a channel to engage and make money from their audiences.

Substack is a group of start-ups that started to thrive in the pandemic, and investors started fighting to pour money into them soaring valuations. But by 2022, some so-called pandemic winners, like the 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, ballooning inflation and the declining stock market, compounded the gloom.

Erin Griffith contributed reporting.

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