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Ballyhooed newsletter platform Substack, which lured prominent writers with the promise of cashing in on dealings with readers, has halted its fundraising efforts after the venture investment market has cooled in recent months, according to people familiar with the decision.
Substack has been in talks with potential investors in recent months about raising $75 million to $100 million to fund the growth of its business, people said, only to speak anonymously because the talks are confidential. Some of the fundraising discussions said he valued the company between $750 million and $1 billion.
The decision is another sign of a sharp shift from free-flowing cash flow in recent years, especially for vibrant, consumer-facing young entrepreneurs like Substack, which has raised at least $86 million in three rounds of funding. according to PitchBook, which tracks the funds.
Now, investors are preaching austerity and stopping new deals, especially for companies that spend aggressively on growth with no sign of profit. While Substack is still hiring, other firms grappled with layoffs or lower valuations, with some to compare this downturn to the years after the 2008 financial crisis or the 2000 dot-com bubble.
A Substack spokesperson, Lulu Cheng Meservey, declined to comment on the company’s finances or any financing talks. Pointing to a web page with more than a dozen job postings, including a head of growth, he said the company continues to be in growth mode.
“My comment is www.substack.com/jobs,” he said.
The investment terms discussed for Substack would represent a jump in the company’s valuation, which is said to have reached $650 million last year after the company closed a $65 million funding round from investors including Andreessen Horowitz.
Substack told investors it had generated nearly $9 million in revenue in 2021, with people familiar with the fundraising talks saying the talks meant the company had a high premium over its financial results. Such a high valuation for a relatively small-income company was more common in the final months of 2021, when the stock market exploded and venture firms were more optimistic about startups.
The company promoted itself as an alternative to established publishers of news articles, graphic novels and books. Substack says it gives authors a fairer share of the revenue from their work. The company takes a 10 percent deduction from the total revenue paid to authors by newsletter subscribers. Substack’s payment processor, Stripe, takes another 3 percent.
The company has won influential writers, including journalists Matthew Yglesias and Glenn Greenwald, and American history professor Heather Cox Richardson. The company’s 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 Substack’s top 10 most popular authors.
However, some writers who were initially won over by Substack’s speech eventually decided to leave the platform and chose to woo their audience directly without paying the company their stake. Others were disappointed with the company’s hands-on approach to moderating content on the platform. Last month, The New York Times reported He said some newsletter writers are exploring alternatives to Substack, such as Ghost, which offers similar services. Ghost’s open-source streaming platform does not moderate content, but the paid hosting service has some restrictions for content that calls for violence or otherwise violates the law.
Substack also faces stiffer competition from the big tech companies, with most of the media companies it wants to compete with. Puck, a start-up founded by Jon Kelly, a former editor of Twitter, LinkedIn, The Atlantic and Vanity Fair, uses email newsletters as a channel to engage and monetize their audience.
Substack is among a group of startups. thrive in the pandemicand investors began to fight to pour money into them at rising valuations. But by 2022, some so-called pandemic winners will audio app Clubhouse or grocery delivery service InstacartThey found that as people returned to their daily routines, their explosive growth began to slow.
Broader economic forces, including higher interest rates, rising inflation and a falling stock market, added to the gloom.
Erin Griffith contributing reporting.
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