Substack abandons fundraising effort as market sours

After the venture capital market has cooled in recent months, Substack, a much-hyped newsletter platform that promises to use its readership to lure prominent writers, has given up efforts to raise capital, according to people familiar with the matter.

Substack has discussed raising between $75 million and $100 million in recent months with potential investors to fund its growth, people familiar with the matter said. Because the talks were private, they could only speak anonymously. Some fundraising discussions have valued the company at between $750 million and $1 billion, they said.

The decision is another sign of a clear shift in recent years to provide free-flow cash for young startups, especially buzzy consumer-facing startups like Substack, which has raised at least $86 million in three funding rounds. , according to PitchBook, which tracks funds.

Investors are now touting a squeeze and a halt to new deals, especially for companies that are betting big on growth with no sign of profitability.While Substack is still hiring, other companies have fight layoffs or lower valuations, some of which Compare This downturn was a few years after the 2008 financial crisis or the 2000 dotcom bubble.

Substack spokeswoman Lulu Cheng Meservey declined to comment on the company’s financials or any financing conversations. The company is still in growth mode, she said, pointing to a web page with more than a dozen job listings, including a growth executive.

“My review is www.substack.com/jobs,” she said.

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

Substack has told investors that it will generate about $9 million in 2021 revenue, implying that the discussions value the company at a high premium to its financial results, people familiar with the matter said. Such high valuations are more common for a company with relatively little revenue in the second half of 2021, when the stock market is booming and venture capital firms are more bullish on startups.

The company has positioned itself as an alternative to established publishers of news articles, graphic novels and books. Substack says it lets writers get a fairer share of their work. The company takes 10% of the total newsletter revenue subscribers pay to writers. Substack’s payment processor Stripe accounted for another 3%.

The company has won influential writers including journalists Matthew Iglesias and Glenn Greenwald and American history professor Heather Cox Richardson. More than 1 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, executives at the company said.

But some writers who were initially persuaded by Substack’s hype eventually decided to leave the platform, preferring to court their audience directly rather than paying the company a commission. Others were disappointed by the company’s hands-off approach to moderating content on the platform. Last month, The New York Times report Some newsletter authors are exploring alternatives, such as ghost, a platform that provides services similar to Substack. Ghost’s open-source publishing platform doesn’t moderate content, but its paid hosting service has some restrictions on content that calls for violence or the law.

Substack also faces tougher competition from major tech companies as well as the many media companies it is looking to compete with. Twitter, LinkedIn, The Atlantic, and Puck — a startup founded by former Vanity Fair editor Jon Kelly — are all using email newsletters as a way to reach audiences and make money from them.

Substack is one of a group of startups Thrive in a pandemic, and investors began scrambling to pump money into them amid soaring valuations.But some so-called pandemic winners, such as Audio App Clubhouse and Grocery delivery service Instacarttheir explosive growth began to slow as people returned to their daily lives.

Broader economic forces, including higher interest rates, ballooning inflation and falling stock markets, have added to the pessimism.

Erin Griffith Contribution report.