According to people with knowledge of the decision, Substack, the deceptive newsletter platform that has attracted popular writers with the promise of monetizing their relationships with readers, has dropped its fundraising efforts. after the venture capital market cooled in recent months.
Substack has held discussions with potential investors in recent months about raising between $75 million and $100 million to fund the growth of its business, who say know, who will only speak anonymously because the negotiations are private. Some fundraising discussions have valued the company between $750 million and $1 billion, they said.
The decision is another sign of a stark change from recent years in terms of free cash flow for young startups, especially those that are vibrant, people-oriented. Consumers like Substack, have raised at least $86 million in three funding rounds, according to PitchBook, which tracks funding.
Now, investors are preaching austerity and halting new deals, especially for companies that are spending heavily on growth with no signs of turning a profit. Although Substack is still hiring, other companies have struggling with layoffs or a lower price, with some compare this downturn came in the years following the 2008 financial crisis or the dot-com bubble of 2000.
A spokesman for Substack, Lulu Cheng Meservey, declined to comment on the company’s financials or any funding conversations. She said the company is still in growth mode, pointing to a website that has more than a dozen job listings, including a head of growth.
“My review is www.substack.com/jobs,” she said.
The investment terms being discussed for Substack will represent a jump in the company’s valuation, which reportedly hit $650 million last year after the company closed a $65 million funding round from Investors include Andreessen Horowitz.
Substack has told investors the company has about $9 million in revenue in 2021, people with knowledge of the fundraising talks said, meaning the discussions have priced in. company is at a premium relative to its financial results. Such a high valuation for a company with relatively small revenues is more common in the final months of 2021, when the stock market is booming and venture capitalists tend to be more bullish on the company. start-up companies.
The company advertised itself as an alternative to established news, graphic novels, and book publishers. Substack says it gives writers a fairer share of the revenue from their work. The company takes a 10% cut of the total revenue paid to writers by their newsletter subscribers. Stripe, Substack’s payment processor, adds 3 percent.
The company has won influential writers including journalists Matthew Yglesias and Glenn Greenwald, and Heather Cox Richardson, an American history professor. Company executives have said that over a million people pay to subscribe to newsletters on its platform, and users pay more than $20 million a year to subscribe to Substack’s 10 most popular writers .
But some writers, who were initially won over by Substack’s pitch, eventually decided to leave the platform, wanting to pitch their audience directly without paying the company a cut. its. Others expressed frustration at the company’s strict approach to moderating content on the platform. Last month, The New York Times report that some newsletter writers have explored alternatives such as Ghost, a platform that provides similar services to Substack’s. Ghost’s open-source publishing platform doesn’t censor content, but its paid hosting service has some restrictions on content that claims to be violent or violates the law.
Substack is also facing stiffer competition from major tech companies, along with many of the media companies it is looking to compete with. Twitter, LinkedIn, The Atlantic, and Puck — a startup founded by Jon Kelly, a former editor at Vanity Fair — are all using email newsletters as a channel to engage and monetize their audiences.
Substack is one of the start-up groups thrive during the pandemic, and investors began scrambling to pour money into them at sky-high valuations. But some are called pandemic winners, like Clubhouse sound app and Instacart . grocery delivery servicehave seen their explosive growth begin to slow as people get back to their day jobs.
Broader economic forces, including higher interest rates, soaring inflation and a falling stock market, added to the gloom.
Erin Griffith contribution report.
