Note: This was originally published as part of the daily newsletter at the Columbia Journalism Review, where I’m the chief digital writer
Axios reported on Tuesday that Substack is raising another $65 million in venture financing, which will give the newsletter-publishing platform a theoretical market value of $650 million. That’s more than ten times what Substack was reportedly worth when it raised its first $15-million round of financing in 2019, which — like the latest round — was led by Silicon Valley investment firm Andreessen Horowitz. In a blog post, the company said that it is going to use the money to expand its program of giving writers and journalists advances (which have to be earned back from their subscription revenues) to allow them to quit their jobs and join the platform, as well as more fellowships, grants, mentorship programs, and other resources. The company said it also wants to invest in initiatives to support local news, in “an effort to kickstart the development of a news ecosystem that thrives on direct support from readers.” Ultimately, Substack says the goal of the new funding is the same as the original round it raised, which is to “build an alternative media economy that unlocks the full potential of the internet and gives more power to writers and readers.”
Although the company doesn’t mention it in its blog post, the extra cash might also come in handy as a war chest, given that both Facebook and Twitter have said they are getting into the newsletter business and would like to eat some of Substack’s lunch. Facebook recently said it will allow writers and journalists to create their own subscription newsletters with the platform’s help, as well as landing pages, and that it will be paying some of the writers in a pilot program — and it won’t charge them anything for its services, unlike Substack, which takes a 10-percent cut of any revenue its authors bring in. Twitter has also shown signs of wanting to move in on Substack’s turf: the company acquired a newsletter platform called Revue recently, and says it plans to help users sign up subscribers, and it only plans to charge a 5-percent fee. “At the end of the day, can Substack create a community or platform or tool which is far and away better than anything Facebook and Twitter can build… or copy?” one observer asked following the news.
Competing with Twitter and Facebook is just one challenge that Substack will have to meet with its newfound cash. The other is just as large, if not larger: namely, meeting the demands and expectations of its funders. Venture capitalists don’t just hand over tens of millions of dollars because they like you, or because they want to dismantle the traditional media — although there is some evidence that Andreessen Horowitz has aspirations towards the latter. Not only has the firm talked about creating its own media entity, but it has also invested in a number of services like the audio-chat platform Clubhouse, which the founders of Andreessen Horowitz have used as an alternative to traditional interviews. But apart from that, VC lenders tend to have very specific expectations about the financial returns they get from their investments, and they are not above pressuring the companies they fund to change the way they do business in order to produce these returns.Continue reading “Substack raises more money, but is that a good thing?”