Substack Drops Fund-Raising Efforts as Market Sours

People with knowledge of the decision say that Substack dropped efforts to raise money after the market for venture investments cooled in recent months.

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

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

Companies that spent aggressively on growth with no signs of profits are being preached about by investors. Substack is still hiring, but other firms have had layoffs or lower valuations, with some comparing this downturn to the years after the 2008 financial crisis or 2000 dot-com bubble.

A Substack spokeswoman, Lulu Cheng Meservey, wouldn't comment on the company's financials or funding conversations. She pointed to a website with more than a dozen job listings, including a head of growth.

She said that her comment was at www.substack.com/jobs.

The investment terms under discussion for Substack would have represented 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.

According to people with knowledge of the fund-raising talks, Substack told investors it had revenue of $9 million in 2021. When the stock market was booming and venture firms were more bullish on start-ups, such a high valuation for a company with relatively small revenue was more common.

The company wants to be an alternative to established publishers of news articles, graphic novels and books. Substack says it gives writers more money for their work. The company takes a 10 percent cut of the total revenue paid to writers. Substack's payment processor, Stripe, takes 3 percent.

Matthew Yglesias, Glenn Greenwald, and Heather Cox Richardson are some of the influential writers that the company has won over. The company's executives have said that more than one million people pay to subscribe to newsletters on its platform, and that users pay more than $20 million a year to subscribe to Substack's 10 most popular writers.

Some writers who were initially won over by Substack's pitch eventually decided to leave the platform, preferring to court their audience directly without paying the company its cut. Others were not happy with the company's approach to moderation. Ghost, a platform that provides similar services to Substack, was reported last month by The New York Times. Ghost's open-source publishing platform does not moderate content, but its paid hosting service has some restrictions for content that calls for violence or otherwise breaks the law.

Substack is facing stiff competition from major tech companies and many of the media companies it is trying to compete with. Email newsletters are being used as a channel to engage and make money by start-ups.

Substack is among a group of start-ups that started to thrive in the pandemic, and investors began fighting to pour money into them at soaring valuations. The growth of some so-called pandemic winners, like the audio app Clubhouse or the grocery delivery service, has slowed as people return to their daily routines.

Higher interest rates, ballooning inflation and the declining stock market compounded the gloom.

The reporting was contributed to byErin Griffith.