Substack abandons fundraising efforts as market crashes

Substack, the ballyhooed newsletter platform that has lured prominent writers with the promise of cashing in on their readership, has abandoned fundraising efforts after the venture capital market cooled in recent months. , according to people with knowledge of the decision.

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

The move is another sign of the sea change from past years of free-flowing cash for young start-ups, especially hot and consumer-oriented ones like Substack, which has raised at least $86 million in three years. funding rounds, according to PitchBook, which tracks funding.

Investors today are preaching austerity and halting new deals, especially for companies that have spent aggressively on growth with no sign of profit. Although Substack continues to hire, other companies have faced layoffs or lower valuations, some comparing this slowdown in the years following the financial crisis of 2008 or the Internet bubble of 2000.

A Substack spokeswoman, Lulu Cheng Meservey, declined to comment on the company’s finances or any fundraising talks. She said the company remains in growth mode, pointing to a webpage with more than a dozen job postings, including a growth manager.

“My comment is,” she said.

Investment terms being discussed for Substack would have represented a jump in the company’s valuation, which reportedly hit $650 million last year after the company closed a $65 million funding round with investors. investors, including Andreessen Horowitz.

Substack told investors it had about $9 million in revenue in 2021, people familiar with the fundraising talks said, meaning the talks valued the company at a large premium to its financial results. Such a high valuation for a company with relatively low earnings was more common in the later months of 2021, when the stock market was booming and venture capitalists were more bullish on startups.

The company marketed itself as an alternative to established publishers of news articles, graphic novels and books. Substack says this 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 subscribers to their newsletters. Stripe, Substack’s payment processor, takes an additional 3%.

The society appealed to influential writers, including journalists Matthew Yglesias and Glenn Greenwald, and American history professor Heather Cox Richardson. Company executives said more than a million people pay to subscribe to newsletters on its platform, and users pay more than $20 million a year to subscribe to the top 10 writers. from Substack.

But some writers initially won over by Substack’s pitch eventually decided to leave the platform, preferring to woo their audience directly without paying their share to the company. Others were disappointed with 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 certain restrictions for content that calls for violence or breaks the law.

Substack also faces stiffer competition from big tech companies, as well as 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 — all use email newsletters as a channel to engage and earn money with their audience.

Substack is among a group of start-ups that have begun to thrive during the pandemic, and investors have begun scrambling to pour money into them at skyrocketing valuations. But some would-be winners of the pandemic, like audio app Clubhouse and grocery delivery service Instacart, have seen their explosive growth start to slow as people get back to their daily routines.

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

Erin Griffith contributed report.

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