Substack, the ballyhooed newsletter platform that has lured prominent writers with the promise of cashing in on their relationships with readers, has dropped efforts to raise money after the market for venture investments cooled in recent months, according to people with knowledge of the decision.
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. Some of the fund-raising discussions valued the company at between $750 million and $1 billion, they said.
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, according to PitchBook, which tracks funding.
Now, investors are preaching austerity and halting new deals, particularly for companies that spent aggressively on growth with no signs of profits. Though Substack is still hiring, other firms have grappled with 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, declined to comment on the company’s financials or any funding conversations. She said the company remained in growth mode, pointing to a web page with more than a dozen job listings, including a head of growth.
“My comment is www.substack.com/jobs,” she said.
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 including Andreessen Horowitz.
Substack has told investors that it had revenue of about $9 million in 2021, the people with knowledge of the fund-raising talks said, meaning that the discussions valued the company at a hefty premium relative to its financial results. Such a high valuation for a company with relatively small revenue was more common in the latter months of 2021, when the stock market was booming and venture firms were more bullish on start-ups.
May 27, 2022, 3:14 p.m. ET
The company has pitched itself as an alternative to established publishers of news articles, graphic novels and books. Substack says …….