Substack, the five-year-old newsletter platform that has aggressively positioned itself as a disruptive force in media, has abandoned efforts to raise a Series C round, the New York Times is reporting today. According to its sources, Substack held discussions with potential investors in recent months about raising $75 million to $100 million at a valuation of between $750 million and $1 billion.
Substack, based in San Francisco, was most recently valued at $650 million by its investors after closing a $65 million Series B round in March of last year led by earlier investor Andreessen Horowitz (a16z). It had earlier raised a $15.3 million Series A round led by a16z in 2019.
Substack originally launched as a way to turn newsletters into a paid subscription business, inviting anyone with an interest to hop on the platform and start writing for however much they want to charge their readers. Writers were — and still are — encouraged to write for free; those who charge a subscription pay 10% of what they collect to Substack, with Stripe, its payment processor, collecting another 3%.
The company later added support for podcasts and just this month, it rolled out its own podcast player, along with new moderation tools, leaderboard categories and more. As CEO Chris Best told TC several years ago, Substack’s goal has always been to allow its users to create their own “personal media empire.”
Whether the business is capable of generating meaningful revenue despite these bells and whistles is the question investors might have been asking themselves.
The company told Axios late last year that the top 10 writers on the platform collectively generate $20 million in annual revenue. According to the Times, Substack told investors that, overall, it had revenue of about $9 million last year. (It told the Times in a separate story last month that it has hundreds of thousands of paid newsletters now on the platform.)
That’s not a lot of revenue for a company boasting a $650 million valuation. Substack also faces some inevitable churn, with writers leaving the platform owing to Substack’s hands-off content moderation policy, in some cases, or for competing platforms that take a smaller cut. Other writers simply burn out.
The Times notes that Substack is one of many outfits right now facing new headwinds, as investors snap shut their checkbooks amid rising interest rates that have severely dented stock stocks and slowed growth in the U.S. and global economies.
Still, if Substack’s broader fortunes should change, it would be the second, highly hyped consumer company in Andreessen Horowitz’s portfolio to have truly captured the public’s imagination, then lost momentum.
Clubhouse, the audio-based social network, has, like Substack, gathered the bulk of its funding across numerous rounds led by a16z. Just as Substack became a point of fascination for media companies — in addition to the Times, it has been covered by Vanity Fair, the New Yorker, and others — Clubhouse similarly dominated the headlines for several months during the pandemic thanks in part to appearances on the platform by Elon Musk and Mark Zuckerberg. Yet as the worst of Covid seemingly passed and those once drawn to the service resume socializing in person, Clubhouse has reportedly seen sign-ups plummet.
Andrew Chen, a general partner focused on consumer tech for a16z, led both deals.
Substack has raised $86 million over three rounds of funding, according to PitchBook. In addition to a16z, it is backed by Fifty Years, Y Combinator, and entrepreneur Audrey Gelman, who cofounded The Wing, per Crunchbase data.
We reached out earlier today to Substack for comment. In the meantime, a spokesperson for the company told the New York Times that the change in the company’s fundraising strategy does not impact hiring plans.”My comment is www.substack.com/jobs,” she told the outlet.
