Some more details:
"Substack laid off 13 of its 90 employees on Wednesday, part of an effort to conserve cash amid an industrywide funding crunch for start-ups.
Substack’s chief executive, Chris Best, told employees that the cuts affected staff members responsible for human resources and writer support functions, among others, according to a person familiar with the discussion.
Mr. Best told employees on Wednesday that Substack had decided to cut jobs so it could fund its operations from its own revenue without raising additional financing in a difficult market, according to the person with knowledge of the discussion."
So to be fair to Substack, while their valuation is crazy it's not like they are burning through VC money with wild abandon. Nice to see some restraint instead of a CEO feeding delusional hype.
$9M in annual revenue with possible fundraising valuing Substack at $750M-1B? Wow, even when the markets were hot and valued growth, that's a really aggressive valuation. We're talking 100x revenue, which is insane to me. Sounds like they're doing what they should be by trying to run off revenue, plus some cash in the bank. I think the days of hyper-growth startups are over — at least until markets improve and/or the Fed returns to QE policies.
There seems to be more of these than most folks(incl. me) realized. High 100's of millions to a billion valuation for companies doing high 100s of thousands to single digit millions of revenue. This, fast, a few others I've heard of privately.
Not surprised. A ton of political writers who got slurped up into Substack all compete over the same niche audience who definitely aren't paying $10/month or whatever for 15 different writers doing basically the same "heterodox" takes. That swarm effect works on "free" mediums like the blogosphere back in the day or Twitter, but it doesn't really scale to paywalled newsletters.
A lot of people want to support those writers in a Patreon-like model, which is the role that Substack plays for readers who want to help writers have an online presence where they are free to honestly write about different subjects.
On a recent episode of the Odd Lots podcast [1], they discussed an interesting phenomenon where hot startups won’t want to raise when markets are down, even if funding is available, because they don’t want to do a down round. Doing a down round marks the company to market and shows up as a materialized loss in the VC’s fund, whereas they can keep the old valuation if they don’t raise.
I think what substack needs is better content/writer discovery. There seems to be no good way to find related substack blogs adjacent to the ones I already follow. Medium .com at least got that part right. I can go to the home page of Medium and find huge assortment of articles that interest me. That's not the same with Substack.
Also, the the pop-up prompt to subscribe on mobile is annoying and does not go away. It should be disabled via cookies if you decline to subscribe.
It's an important feature that I can subscribe to the blogs I like without hearing anything at all about the ones I don't like. Get rid of the separation and you basically have Twitter or Reddit. People will complain about the stuff they don't like, and the next thing you know, Substack will need to hire an army of moderators.
Don't cross the streams. Not on Substack itself, anyway. The recommendations can happen via other websites like Hacker News and the occasional author link.
> Substack, which takes a cut of its writers’ subscription fees, generated about $9 million in revenue last year, The New York Times reported. That means the funding discussions valued the company at a hefty premium relative to its financial results. Substack was said to be valued at $650 million last year after the company closed a $65 million funding round.
By any yardstick, a price/sales ratio of 72 is ludicrous. It's the kind of thing that can only happen within the safety of a financial bubble.
I keep waiting for someone at Substack to start an aggregate of a whole bunch of wankers (some of whom are good), with consistent editing, advertising, and publish dates. Sell it at one reasonable price.
They could call it, I don't know... A "magazine" [tm]
I've thought the same about both Substack and legacy media.
I recently cancelled my NYT subscription, but I would happily pay a one-time fee for a nicely packaged, printed copy of their journalistic scoops. I think their last big one was about the impact of drone bombings in civilian areas in Afghanistan and Pakistan. That's an important piece of research that deserves a permanent home.
No such option exists. And unfortunately, I'm not going to pay $20/mo CAD for what appears to be 50% opinion columnists, often writing columns about the same thing week after week.
There are curated magazine-like things on Substack, but they are organized by writers' collectives, not Substack itself. One example: https://www.discourseblog.com/about
I think folks are undervaluing for a VC firm the signal value of investing in a hot brand. Even if it isn't a huge exit, sometimes having a great name you can highlight on your website at the top of your portfolio co list will be useful for attracting future LPs or businesses (and if you're not a partner and you work on the deal, you can use the name as an example of a deal you worked on with little impact if the price is too high because you weren't final decision maker)
Are they currently prioritising revenues and profitability?
You could have real estate in the heart of Manhattan that you make $0 on, but that doesn't make it worthless because of the potential of that real estate.
We know highly trafficked websites (and apps) can make billions selling ads. My guess is that investors saw value in the virtual real estate of Substack so that $650m might not be as unreasonable as it seems on the surface.
Valuations are based on future performance, not current performance. If they're going to do $100m in revenue this year then the valuation is perfectly reasonable.
But I'm just guessing. It might be as unreasonable as you suggest. I'm just saying there can be cases when that kind of valuation would make sense if the potential for higher future revenues / earnings exist.
Same way that WeWork was 'valued' at $50bn, before they revealed their full financials to the public. Then the IPO collapsed; the company was worth $10bn tops, and most of that is in assets they purchased during Softbank's dalliance with Adam Neumann.
The same Adam Neumann that Substack investors A16Z have given $70m to to develop a carbon credits trading blockchain. I shit you not.
Anyone can value any company at whatever number they want. Doesn't mean the rest of the world (or even the rest of the VC industry) shares that opinion. a16z, who invested $65M in their last round, also just gave $70M to Adam Neumann for his crypto startup, so their judgement is anyways a bit suspect.
Not rare at all. A friend recently worked at a company that did $300k in revenue last year and was valued at $750M shortly after! Of course, they laid off like 20% of their staff recently.
I think they gave out lots of contracts to contrarian writers (but just the sort of writer who excites venture capitalists), and assumed eventually the extra eyeballs would turn into revenue.
Coinbase, Bird, Redfin, Netflix, Tesla, Unity, Niantic and now Substack have announced layoffs in just the past few weeks, and Meta and Intel are in a hiring freeze. I think the next tech winter might be upon us. Is the return of FuckedCompany next?
To the folks saying the revenue multiple is crazy: remember that the $9MM revenue is substack's cut, not GMV (gross merchandise value: the amount subscribers paid).
If you're comparing substack with a non-marketplace business, you probably want to compare gross profit between the two, or compare substack's GMV with the other company's revenue.
They have lost some prominent and apparently successful publications to competitors with lower fees and apparently better service (I can think of two at least who have moved to Ghost). Will be hard to build scale and profitability when your best writers have an incentive to move elsewhere.
I wonder what the future of Substack looks like, I have seen that they have been trying to push into the podcast space recently. I wonder if they continue to broaden the content they support and just slowly morph into a Patreon type site where instead of featuring just newsletters it is built for any type of content that allows paid subscriptions.
I'm sure the NYT editors were cackling at this story. It wasn't too long ago that there was a huge worry that paid newsletters were going to subsume a huge portion of the subscription market for professional newsrooms. Substack was offering guaranteed contracts to writers worth more than their subscription revenue could justify in order to bootstrap a network effect. The classic VC strategy of selling dollars for fifty cents. That ultimately backfired because they were indiscriminate about who they let on their platform which raised hackles from some writers who saw it as a platform for unsavory opinions.
Substack is the Medium of newsletters; the content is neither rare nor well-done. I'm not surprised they need to dump staff; their business model was never sustainable. Why should I pay to read some wanker's opinions in my inbox when I can read a whole bunch of other wankers' opinions for free using their RSS feeds, without having to worry about whether any of these wankers are selling their mailing lists to make a little extra cash on the side?
I have a day job and write on Substack. I am barely able to post once a month, sometimes less. I still have thousands of subscribers and hundreds of paying subscribers. I think it's an exceptional format.
Actually now that I think of it, zero of the people whose writing I would pay for are "writers" by trade, which is part of the dullness problem of consumer media.
True, there are actually some real writers worth reading on substack, but imo, not enough of them, and even less of them that I would be willing to pay to read - heck, I won't even pay to read a newspaper online anywhere as you can get it almost all for free someplace else with a few clicks.
Seems like an attempt to monetize free blogs, problem is, there are still plenty of other free blogs to read - they haven't gone away.
Alternatively, if I care what you have to say, you're probably not a professional writer. Maybe there's a better way to do it than we've seen so far, but I have yet to watch someone go that route without overhyping every little thing, stretching the truth, and then outright making stuff up.
The last thing I want is to get another email list.
For me email is a big ball of stress, there is always a huge amount of spam to delete, even if I keep up on unsubscribing from lists and blocking addresses that send me spam.
When I am reading email I am generally trying to get some specific task done and having email newsletters get in the way means I'm going to skip over the newsletters and never read them.
What the world needs is an RSS reader which is like that Talking Heads song Psycho Killer: "See something once, why see it again?"
I think an ongoing, robust RSS ecosystem is a major thorn in the side of any substack-like business model.
Their target consumer (affluent/intellectual enough to pay for access to ideas) has access to a far wider variety of arguably better content if they're willing to build up a set of RSS feeds.
Maybe there's room to build a company on top of the RSS ecosystem, but it's difficult when free, feature-rich, and high quality alternatives exist.
However, as a publisher/bundler of paid RSS feeds, they have a big conflict of interest in offering an RSS reader. Like Spotify and their "exclusive" podcasts, they have an incentive to push bland content and obscure the rich niches that make the RSS ecosystem actually-valuable.
[+] [-] andreyk|3 years ago|reply
Substack’s chief executive, Chris Best, told employees that the cuts affected staff members responsible for human resources and writer support functions, among others, according to a person familiar with the discussion.
Mr. Best told employees on Wednesday that Substack had decided to cut jobs so it could fund its operations from its own revenue without raising additional financing in a difficult market, according to the person with knowledge of the discussion."
So to be fair to Substack, while their valuation is crazy it's not like they are burning through VC money with wild abandon. Nice to see some restraint instead of a CEO feeding delusional hype.
[+] [-] Spartan-S63|3 years ago|reply
[+] [-] danielmarkbruce|3 years ago|reply
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[+] [-] KerrickStaley|3 years ago|reply
[1] https://www.bloomberg.com/news/articles/2022-06-23/the-behin...
[+] [-] paulpauper|3 years ago|reply
Substack faces a lot of possible problems, imho: does not scale that well, limited audience size, writer burnout https://greyenlightenment.com/2022/06/22/substack-worth-1-bi...
I think what substack needs is better content/writer discovery. There seems to be no good way to find related substack blogs adjacent to the ones I already follow. Medium .com at least got that part right. I can go to the home page of Medium and find huge assortment of articles that interest me. That's not the same with Substack.
Also, the the pop-up prompt to subscribe on mobile is annoying and does not go away. It should be disabled via cookies if you decline to subscribe.
[+] [-] skybrian|3 years ago|reply
Don't cross the streams. Not on Substack itself, anyway. The recommendations can happen via other websites like Hacker News and the occasional author link.
[+] [-] Barrera|3 years ago|reply
By any yardstick, a price/sales ratio of 72 is ludicrous. It's the kind of thing that can only happen within the safety of a financial bubble.
[+] [-] AlbertCory|3 years ago|reply
I keep waiting for someone at Substack to start an aggregate of a whole bunch of wankers (some of whom are good), with consistent editing, advertising, and publish dates. Sell it at one reasonable price.
They could call it, I don't know... A "magazine" [tm]
[+] [-] rchaud|3 years ago|reply
I recently cancelled my NYT subscription, but I would happily pay a one-time fee for a nicely packaged, printed copy of their journalistic scoops. I think their last big one was about the impact of drone bombings in civilian areas in Afghanistan and Pakistan. That's an important piece of research that deserves a permanent home.
No such option exists. And unfortunately, I'm not going to pay $20/mo CAD for what appears to be 50% opinion columnists, often writing columns about the same thing week after week.
[+] [-] burkaman|3 years ago|reply
[+] [-] kwertyoowiyop|3 years ago|reply
[+] [-] atlasunshrugged|3 years ago|reply
[+] [-] kypro|3 years ago|reply
You could have real estate in the heart of Manhattan that you make $0 on, but that doesn't make it worthless because of the potential of that real estate.
We know highly trafficked websites (and apps) can make billions selling ads. My guess is that investors saw value in the virtual real estate of Substack so that $650m might not be as unreasonable as it seems on the surface.
Valuations are based on future performance, not current performance. If they're going to do $100m in revenue this year then the valuation is perfectly reasonable.
But I'm just guessing. It might be as unreasonable as you suggest. I'm just saying there can be cases when that kind of valuation would make sense if the potential for higher future revenues / earnings exist.
[+] [-] rchaud|3 years ago|reply
Same way that WeWork was 'valued' at $50bn, before they revealed their full financials to the public. Then the IPO collapsed; the company was worth $10bn tops, and most of that is in assets they purchased during Softbank's dalliance with Adam Neumann.
The same Adam Neumann that Substack investors A16Z have given $70m to to develop a carbon credits trading blockchain. I shit you not.
[+] [-] paxys|3 years ago|reply
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[+] [-] muglug|3 years ago|reply
[+] [-] gowld|3 years ago|reply
ROI: https://www.youtube.com/watch?v=BzAdXyPYKQo
[+] [-] russellbeattie|3 years ago|reply
https://en.m.wikipedia.org/wiki/Fucked_Company
[+] [-] rahimnathwani|3 years ago|reply
If you're comparing substack with a non-marketplace business, you probably want to compare gross profit between the two, or compare substack's GMV with the other company's revenue.
Also consider growth expectations.
[+] [-] klelatti|3 years ago|reply
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[+] [-] 999900000999|3 years ago|reply
What's their to scale ? It feels like a really over engineered solution to a basic problem.
[+] [-] 40acres|3 years ago|reply
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[+] [-] EddieDante|3 years ago|reply
Real writers have day jobs.
[+] [-] simonsarris|3 years ago|reply
Actually now that I think of it, zero of the people whose writing I would pay for are "writers" by trade, which is part of the dullness problem of consumer media.
[+] [-] ejb999|3 years ago|reply
True, there are actually some real writers worth reading on substack, but imo, not enough of them, and even less of them that I would be willing to pay to read - heck, I won't even pay to read a newspaper online anywhere as you can get it almost all for free someplace else with a few clicks.
Seems like an attempt to monetize free blogs, problem is, there are still plenty of other free blogs to read - they haven't gone away.
[+] [-] bachmeier|3 years ago|reply
Alternatively, if I care what you have to say, you're probably not a professional writer. Maybe there's a better way to do it than we've seen so far, but I have yet to watch someone go that route without overhyping every little thing, stretching the truth, and then outright making stuff up.
[+] [-] PaulHoule|3 years ago|reply
For me email is a big ball of stress, there is always a huge amount of spam to delete, even if I keep up on unsubscribing from lists and blocking addresses that send me spam.
When I am reading email I am generally trying to get some specific task done and having email newsletters get in the way means I'm going to skip over the newsletters and never read them.
What the world needs is an RSS reader which is like that Talking Heads song Psycho Killer: "See something once, why see it again?"
[+] [-] gen220|3 years ago|reply
Their target consumer (affluent/intellectual enough to pay for access to ideas) has access to a far wider variety of arguably better content if they're willing to build up a set of RSS feeds.
Maybe there's room to build a company on top of the RSS ecosystem, but it's difficult when free, feature-rich, and high quality alternatives exist.
FWIW, it does seem like Substack is trying to attack this space: https://on.substack.com/p/new-reader-homepage.
However, as a publisher/bundler of paid RSS feeds, they have a big conflict of interest in offering an RSS reader. Like Spotify and their "exclusive" podcasts, they have an incentive to push bland content and obscure the rich niches that make the RSS ecosystem actually-valuable.
[+] [-] mayneack|3 years ago|reply
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[+] [-] jjtheblunt|3 years ago|reply
What a great quote!
[+] [-] r0m4n0|3 years ago|reply