The five-year-old Substack newsletter platform has decided to abandon its plans for a Series C fundraising round. It was revealed that Substack talked with potential investors during the previous months before deciding to cancel its Series C funding.
Substack Raised $65 Million During Its Series B Funding Putting Its Valuation at $650 Million
The New York Times described Substack as a company that has “aggressively positioned itself as a disruptive force in media.” Sources say the company talked with potential investors regarding raising $75 to $100 million.
If the funding did push through, Substack would be at a valuation of $750 million to $1 billion. According to Axios, during its Series B valuation, the San Francisco-based company was able to raise $65 million which closed its valuation at $650 million.
Substack Takes a 10% Cut of Subscription Fees
According to the story by Tech Crunch, the company’s Series A funding was led by Andreessen Horowitz back in 2019 with its Series B funding raising $15.3 million. The company’s original launch included a way for its users to “turn newsletters into a paid subscription business.”
Substack encouraged users to write on the platform for their subscribers and although they can do this for free but when charging for a subscription, the company gets a 10% cut. Users will also be paying another 3% to its payment processor, Stripe.
Company Says Top 10 Writers Made $20 Million in Revenue Respectively
The company also rolled out its podcast player which included leaderboard categories and moderation tools among other podcast-support features. As per Chris Best, the CEO of Substack, the company’s goal has been to create “their own personal media empire.”
Investors, however, have still been asking themselves whether the platform will be able to make revenue “despite these bells and whistles.” Substack described the economy within its platform telling Axios that $20 million was generated in annual revenue by the top 10 writers on the platform collectively.
Substack Only Generated $9 Million in Revenue in 2021
According to another article by The New York Times, Substack told its investors that it had been able to generate $9 million in revenue in 2021. Tech Crunch notes that the revenue Substack created wasn’t that large considering the company was boasting about its valuation at $650 million.
Another issue Substack is facing is writers leaving their platform to go to competitors that charge smaller fees. Other writers are finding out that the platform’s economics might not be too good for them or they simply burn out due to too much writing.
Substack Raised $86 Million in Total Over Three Rounds of Founding
The company has been able to raise $86 million over three funding rounds as per Pitchbook.
The company is also backed by Fifty Years, Y Combinator, and the cofounder of The Wing, a co-working startup, Audrey Gelman. This is on top of being backed by a16z themselves.
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Written by Urian B.
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