Substack is laying off 14% of its staff | Hacker News Reader

Substack is laying off 14% of its staff

nytimes.com

131 pointsjdp23191 comments

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.

The newsletter hype cycle is over anyway. Substack was the name on everyone's lips when they were buying off big-name writers like Andrew Sullivan. That's faded, they have yet to land any big hitters organically.

People are having to tighten budgets and cut gym memberships, newspapers, Netflix and Spotify subscriptions. Substack isn't even in the mix there.

I'm kinda surprised that a 13 employee layoff at a 90 employee company is newsworthy enough for the NYTimes.

Direct competition for labour. If writers can earn more on Substack then NYT input costs rise.

Journalists at the NYT are probably feeling some schadenfreude about it because substack is often positioned as a kind of anti-mainstream-media website.

Thank you for pointing that out. The US economy is still excepted to grow at 2.5% in 2022. So I am not understand the narrative here. While everyone who is relying on cheap funding to grow their business will be suffering, companies that have solid unit economics should thrive.

[1]https://www.oecd.org/economy/united-states-economic-snapshot...

The narrative is the elite are angry that it now actually costs something to borrow money.

The NYT editorial line despises Substack and prays for it to fail. It's certainly important news for people who are interested in Substack that they're failing to make money, though.

Why do they despise substack? Did Substack do something to piss them off ?

Substack is an existential threat to the NYTimes business model and ultimate existence.

The internal woke mob at the NYT bullied Bari Weiss out of the organization, now she’s making way more money writing over at Substack. Glenn Greenwald was also strong armed out of the media company he founded, retreated to Substack, and is prospering.

Beyond being a direct competitor to aspects of the NYT’s business, their platform and pro-free-speech ethos are an existential threat to the corporate media (like NYT) monopoly on the Overton window.

Claiming Weiss left because she was bullied out of the organization papers over leaves out the fact that there was obviously a significant pull factor to get her to jump ship, as you point out, leaving led her to make significantly more money.

But yes, there’s clearly a resentment from within elite media (WaPo/NYTimes) that people they don’t like have an avenue for editorial independence that is beyond their reach.

It may be true that there was a pull factor, but your comment appears to be trying to let the NYT staff off the hook for what would be considered abusive behavior in any other circumstance.

Reference, straight from the horse's mouth:

https://www.bariweiss.com/resignation-letter

Quote:

> My own forays into Wrongthink have made me the subject of constant bullying by colleagues who disagree with my views. They have called me a Nazi and a racist; I have learned to brush off comments about how I’m “writing about the Jews again.” Several colleagues perceived to be friendly with me were badgered by coworkers. My work and my character are openly demeaned on company-wide Slack channels where masthead editors regularly weigh in. There, some coworkers insist I need to be rooted out if this company is to be a truly “inclusive” one, while others post ax emojis next to my name. Still other New York Times employees publicly smear me as a liar and a bigot on Twitter with no fear that harassing me will be met with appropriate action. They never are.

This is one person's statement, but it's consistent with the way many people have written about the NYT's internal culture and internal cultural shift over the last 5-10 years.

Again, I don’t doubt that there wasn’t a tense environment for her in that newsroom.

But your “from the horses mouth” citation comes from a newsletter that dedicates a significant amount of its virtual ink towards the anti woke/cancel culture run amok beat. Weiss has literally made her living on this subject for years now, she isn’t unbiased*

*that said, I do want to note that biased does not mean wrong, even though it is often portrayed that way.

"Leaves out the fact that ..." she basically deserved it (or it was otherwise necessary)?

That seems to be the innuendo you're making. Either way, I'd like to hear some substantiation as to this "significant pull factor", please.

> Either way, I'd like to hear some substantiation as to this "significant pull factor", please.

> now she’s making way more money writing over at Substack.

> she basically deserved it (or it was otherwise necessary)?

Deserved what? She quit.

Deserved what?

The bullying.

Never said she deserved to be bullied.

I'll admit to being confused by your innuendo. But your post definitely seems to be trying to minimize the abuse she suffered at the NYT -- by implying that her departure was really all about the money. And in another post you basically discounted the abuse claims entirely, saying it was merely a "tense environment".

Clearly we both take the seriousness of her claims differently, yes.

I don’t doubt that it was an unpleasant environment for her to work in, I do not read it as though it was horribly abusive as you seem to though.

So, reading her description, you would think that let's say Fox News had a similar environment for e.g. a member of protected group, it would not be "horribly abusive", and if the company refused to punish it and the victim quit, we should discount their claims of abuse and look for alternative explanations of why they quit?

Writers who develop a name can leave a lower salary for higher pay directly selling newsletters and articles. NYT makes writers famous. It creates a natural friction once a person has a "brand" and can leave for more money and less overheadaches

Is that really so though? No idea about Weiss, but journalists like Greenwald and Taibbi made the name for themselves. And even if people "become famous" while working for NYT, how much of it is really attributable to the person versus the newspaper? Major newspapers are full of people who might have name recognition but (as Greenwald often points out) never do any real journalism; and so would probably have nothing to offer as independents. Not even speaking of complete no-names.

Substack's pitch to high profile journalists and columnists is "come here, bring your fans, get supported directly, and make way more money". This is bad for the NYT and low profile journalists.

From the horse's mouth- https://www.nytimes.com/2021/04/11/business/media/substack-n...

Got any proof you're willing to share?

https://duckduckgo.com/?q=nyt+editorial+substack

Please link the article in question, instead of a search results page.

My evidence is NYT editorials on substack. This search result brings up at least two for you to start with.

Surely you could have found something to quote?

I just read the first link: https://www.nytimes.com/2021/04/11/business/media/substack-n...

Here's a quote:

> The story of Substack, the company, is interesting and, of course, meaningful to its investors. But the shift in power toward individual writers and direct payments has broader implications. And my informal survey of Substack writers found that most are fond of the company and plan to stick around for now — but not out of the sense of loyalty, shared mission or deep identification that used to run through media companies.

What did you see that tells you they 'despise' it?

It doesn't seem like you're asking in good faith. Perhaps the previous poster could have said something like 'in my opinion the NYT editorial line despises...'. A list of articles is a pretty good basis for that sort of opinion.

From what I understand, it's unlikely that a senior NYT editor would explicitly state the paper's opinion on this, which seems to be the proof that you're after, so we're left to extrapolate from their actual publication choices.

I read the articles. No basis for the comment. This is why it would have helped if the OP linked a specific article and perhaps quoted the relevant part.

What isn't in good faith is telling someone "just google it" when they're asked to provide evidence of their claims.

If that's the case then they're doing a bad job at helping it to die.

I didn't know about Substack before, but now I do! :D

Also, their users are probably going to get worse support and might have to switch platforms....

> 13 employee layoff at a 90 employee

Let's rephrase that to 14% to sound more impactful

How about:

Substack fires every 7th employee!

Septimated.

> 14% to sound more impactful

What makes you say that? I don't understand why the percentage figure would carry more weight. I look at 13/90 my brain says "roughly twenty percent", which is too much. Perhaps some people, equally innumerate as I, misjudge the other way. Either way, the facts remain the same.

Do you think numbers expressed as percentages have a different psychological effect? Maybe they sound more authoritative or clever?

It would carry more weight to someone who has never heard of Substack or doesn't know how big a company it is. They'd assume it was a large company because of who was reporting about it.

Ah yes, they're hiding the body count. Makes sense now.

I know what substack is and I fell for it.

13 people losing their jobs isn’t national news and they know it.

Clearly whoever titled the article thought it would have more impact. There's a lot of juicy ambiguity behind 14%. A percentage of what? A layman isn't going to know that it's only a 90 person company. They do know that 14% layoffs at a big company is something to get up in arms about.

Definitely psychological in my opinion.

Note that it's in the Media Business section, and Substack has been an important Media story the last few years. This seems like a normal story for someone on the Media beat to write.

They're a lot more culturally relevant than "90 employees" would suggest. And, sure, NYT is probably happy to report on their rival's misfortune.

When 20 people quit Basecamp, that got a Times article too [0] -- though also a lot of chatter on HN [1].

FWIW I agree with a different comment on this thread that Substack gets disproportionate attention in traditional media because its business model is a financial threat.

[0] https://www.nytimes.com/live/2021/04/30/business/stock-marke...

[1] https://news.ycombinator.com/item?id=26998127

$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.

I know of a company that was valued at ~6 billion at 40 million revenue, and is now valued at ~11 billion at just under 100 million.

I know of a rock in my street that is worth trillions, since carved a tiny bit of it for €5.

Does it keep tigers away?

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.

A Ko-Fi button and a sign-up page on a blog could achieve that.

I suspect Substack writers are hoping to get elevated to the 'paid writer' status that big names like Andrew Sullivan have. That's the only network effect I can think of with their product.

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.

[1] https://www.bloomberg.com/news/articles/2022-06-23/the-behin...

Much like a non-liquid stock, stop all the trading and the company valuation will (on paper) be computed using the last trade’s price.

Coming from this side, I was surprised that Joe and Tracy were unaware of that phenomenon, especially Tracy given her background covering debt markets during periods of low liquidity.

Like most VC questions, the answer is in Silicon Valley (tv show).

"Why the f* didn't anyone tell me I could take less?"

https://www.youtube.com/watch?v=hsmmznL9sFg

damn..I thought they were doing well.

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.

I agree that Substack needs a better content/writer discovery mechanism, like having categories or tags per article/post so that readers can find related articles by subject/genre/type to the one they enjoyed reading.

Unfortunately, Substack wants to do an internal reference or "recommendation" system that basically mimics a closed clique. Those that know other writers may get a friend to "recommend" their newsletter, but it will very likely not be anything that the readers of this friend are interested in since the recommendation may have nothing to do with the content, or the merits of the recommended writer, it's just who they know.

I think people are interested in the content, in a subject, or a genre/type of writing, like humor, advice, reviews, etc. They may want to spend more time with a subject rather than being given irrelevant recommendations based on who the writer reads.

That's true, I'm a subscriber at Medium, often times it suggests something that is of interests to me, I gifted its membership to a friend this year after find it definitely worth $50 a year.

Medium subscribers get free access to the entire library of pragmatic programmer's publications [1]. That alone makes it worth the money in my book.

1. https://medium.com/pragmatic-programmers/directory-of-pragma...

not known this, thanks!

I think the bigger issue is what is their competitive moat? I can't think of a single thing that isn't going to be replicated elsewhere. Unless they start cross advertising between their different newsletters or something to create some type of network effect.

The cross-marketing was clearly the plan but I wonder how many established-writer stans are like “This wasn’t so I could talk to my hero, I was also waiting to pay some unknown person for their food ideas.”

My guess is the conversion numbers on that are terrible.

It has already been replicated. Ghost is one example I know of that is very explicitly competing with them: https://ghost.org/vs/substack/

One newsletter I'm subscribed to recently switched from Substack to Ghost, and as a reader it was completely seamless and I might not have noticed if they hadn't mentioned it. They were able to transfer all their paid subscribers and article archive, so it doesn't seem like these services have any real moat.

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.

Look at what happens here in Germany. A job portal for students just closed 45million Euros in Feb this year. They have raised 95m in 7 years. Their revenues in 2019 were merely a couple of million Euros. I can only guess their valuation.

No it is not. Not when you consider growth.

What is the point of growth if you can't make a successful business? Legitimate question here. I always had a hard time understanding, especially in regards to companies that are still not profitable or just barely after 10 to 20 years.

Seems incredibly risky and not strong enough to weather any economic downturn.

Are companies just copying the Facebook mantra from 2005ish? Didn't FB become immediately profitable once they started selling ads? That was pre ipo.

You could argue the opposite. what's the point of great margins if you have no scale?

look at the Amazon example. they were unprofitable for a very very long time. and the retail business is still very miniscule margins

Isn't the Amazon the exception that proves the rule

Amazon never made any profit because they were always reinvesting. If they had scaled back to "normal business" levels of ambition at any point they'd have been "normal business" levels of profitable.

> what's the point of great margins if you have no scale

Profit? Niche ownership? Reliability? Durability? Expertise?

It makes sense to worship the Church of Scale in a VC-adjacent forum like HN, but it’s not the only way to business.

Please don’t use the “look at Amazon” example. Amazon had positive margins early on and was using cash to buy and build real assets. Amazon also pivoted to an entirely different business where most of its profit comes from - AWS.

No, AWS wasn’t born from Amazon selling excess capacity.

That’s just like saying that if every company rehired its first CEO it could be worth multiple trillions.

The point of profit is profit.

The whole premise of the VC/PE business is profits, just with different risk strategies.

Profit for who? All VCs want is for the company to IPO, because that's when they can get their money back with a nice profit. The company itself doesn't have to be anywhere near profitability to IPO. Look at Uber, Airbnb, Dropbox, etc.

VCs don’t care about profit. They only care about selling to the “greater fool” at unrealistic valuations.

Facebook has insane growth, even today. It had double digit revenue growth for over a decade. For instance, in 2021, their revenue grew 35%, the year before, 20%. You'll see similar numbers if you look at their MAU and DAU. With that kind of growth over a decade, pretty much any valuation is cheap today. Sacrificing even a little growth for revenue today is a bad tradeoff because of compounding effects.

https://www.statista.com/statistics/268604/annual-revenue-of...

And what's their profit for that decade+?

Similar growth in percentage terms (more actually as they're getting more efficient as they scale and have more user data). Pretty much all facebook numbers are up and to the right.

https://www.statista.com/statistics/277229/facebooks-annual-...

A shit ton: https://www.statista.com/statistics/277229/facebooks-annual-...

I think the 'successful business' part has become less relevant for investors that are just looking to exit sooner than later. The business model for many apps has become: make a product > obtain users > get hype > IPO > exit. At the exit portion, the product gets littered with ads, competition starts to catch up, and the product begins to decline.

Obviously this is pretty reductive but this is generally what I have seen as a user of many apps in the past 10 years.

> What is the point of growth if you can't make a successful business?

Ideally? To leave retail investors and pension funds holding the bag when it all blows up.

Yeah but you're changing the subject. Obviously if the business is garbage it is garbage. I'm not saying these businesses are good. I'm just saying you absolutely cannot make a blanket statement like "valued at 72x rev is bullshit" if my business is growing even 2-3x a year, it could be ok. In a few years (6-7) if I keep that up my revenue will outpace even my original valuation.

It means nothing to look at revenue and valuation alone.

s/Not when you consider growth/Speculate an unknowable future to empower finance markets

Well the considerations of growth were wrong and that's why people are getting laid off.

Growth where more growth leads to greater and greater losses, this sounds like 2000 all over again. You know what they say, those who don't learn from history are doomed to repeat it.

the movie pass strategy. Sell people 2 dollars for 1 dollar and experience fantastic growth. Growth is irrelevant if you're not making money, in fact growth in that case means you burn it faster.

Hopefully with the end of the easy money era this ridiculous business model dies out for good.

True, but the distinction is revenue-to-cost per unit of growth.

How are they selling $2 for $1? It's pretty much all employees. How many engineers do you need to support the platform? Probably not a lot. The other expense is paying upfront for content, but a few of the accounts I follow they did this for (e.g. Matthew Yglesias), they came out ahead (e.g. guarantee $250k a year while netting closer to $1 million for subscriptions) [0]. They can cut this out as well if they had to. Their platform is still strong.

They just need to scale back their hiring excesses and bullshit jobs likely created.

https://www.politico.com/news/magazine/2021/04/16/how-substa...

>How are they selling $2 for $1?

the only value of the platform is in the creators, any team of devs can clone the product in a month. You're exactly right that they need barely any employees, because the technology isn't worth anything. The site has no moat or network effects so they will effectively need to subsidize the creators forever or not charge them anything, lest they run for the next platform.

It's the same reason the ridesharing industry is a profitless money pit. Undifferentiated, easily copiable products compete each other into the ground on subsidized investor money while owning no assets of value.

The USP would be their integrity. The vast majority of cloned sites would be looking to make a quick buck and would sell out their creators in a second. If Substack can prove they understand which side their bread is buttered and show some loyalty to their creators and not get too greedy, then I feel like it could be quite sticky. Of course they are likely too deep into the VC money to pull it off, but one can always hope!

You can say the same thing for many saas companies. Anyone can clone Twitter, Facebook, Instagram, etc. But there are network effects. I like substack because they have a free tier and easy monetization. If I were to monetize I'd probably go with them due to ease of monetization, their interface, transferability, etc. The differences between fees in competitors is probably negligible.

It's differentiated to something like Medium because I know I won't get ads, pop-ups, arbitrary paywalls, cheesy SEO content, etc.

Growth is irrelevant if your gross margins are negative. But I'm 100% Substack has fantastic gross margins.

growth? How many $5 subscriptions are people going to pay for factless opinion pieces by self-proclaimed experts of everything like Glenn Greenwald

Precisely. They won't be able to build an independent business off $5 and $10/mo subscriptions per user.

I worked at an energy trading desk some years ago, and market intelligence there came through hyper-focused industry newsletters, with crazy high subscription prices. It's like a Bloomberg terminal, or a Photoshop subscription: only worth subscribing if you are making several multiples of the cost back in profits.

Substack's litany of 'investing' newsletters is basically a mommy blog version of that. Newsletters can't charge very much because we all know this stuff is available elsewhere, in higher quality. And non-financial newsletters probably can't charge at all, other than the small handful you see on their "Featured" page.

The whole point of the term "financial bubble" is that an actual bubble is a great example of something that can grow a lot now but whose current growth should not be interpreted as evidence of structural stability or ability to continue growing indefinitely.

72x revenue is ludicrous even for SaaS standards in a bloated economy (circa Q3~Q4 2021) and considering growth.

It is not blanket ludicrous. Not at all. If you expect the company to grow 100x next year, for example, it is not crazy at all. That's the extreme, but for example if they are valued at $72m and 72x revenue, and grow 100x the next year, now their revenue is $100m. That's great.

Technically their sales would be the full subscription fees, no? So price to sales would be considerably lower. Your point stands with price to revenue though. That said, Substack has an insane amount of brand recognition for a company that only generates $9M in annual revenue, so it doesn't tell the whole story.

What are they odds they switch to ad-supported when they realize their $9M in rev share is worth less than if they just ran ads?

I hope they succeed, but if they don't - I hope people realize the value of the ad revenue model.

I wonder how long the VCs want to wait. Can VCs take over and sell the company off to try & recoup their investment?

Very unlikely. They probably don't have the voting shares, and in this market they definitely don't have the buyer. And lastly, don't forget, every single VC involved in this valuation supported the numbers you're reading.

> 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.

If not 72, what revenue multiples are more appropriate as per the yardsticks you are familiar with?

Single digits, going to low double digits in some industries. Here are a few industry averages: https://eqvista.com/revenue-multiples-by-industry/

One of the industries is Computer Software: Prepackaged Software 112.17% 17.81

And that doesn't take into account that Substack is doubling every 6 months So Substack is 2 doublings or 12 months away of growth from bringing it's multiple to the industry standard, that might be an aggressive evaluation but it doesn't seem insane.

[0] https://www.statista.com/statistics/1243565/substack-paid-su...

* Not to mention most VC deals are sweeter than a pure purchase (in terms of being protected from a down round etc.. *

Series A companies routinely get a 100x on revenue. It’s just how things have worked out in the past 5-8 years. I’m not saying it’s right, but that’s the standard for a lot startups. Get to $1m in ARR, and then raise a $10m series A at a $100m valuation.

I agree that the ratio is crazy. What if it's still a "content acquisition" phase and only when their sub list reaches some huge N, they will try to figure out to get more money out of it? Or a LOT MORE depending on how shady they are willing to go. I guess, for creators it will be quite painful to migrate.

Definitely a crazy multiplier, but not the craziest on the market given other parameters.

The valuation isn't presuming a "mature" business at a 72x ratio, but rather there is a trend where the trajectory is something more reasonable. Is there a path to $90 million in revenue in the next 24 months? I'm sure there is a slide that shows something like that, which would be a 7.2 multiple.

re "reading some wanker's opinions":

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.

Yeah. Very, very few writers are compelling every single week. But take a group of 40, and it's almost guaranteed that at least one hits it out of the park in any given 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

How could a company with $9M revenue, that I would guess isn’t profitable, ever be valued at $650M?

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.

Simple. By market thinking it is $9M now but anticipating significant increase in the relatively near future.

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.

Similar to Pear Therapeutics that SPAC merge announced at $1.6B on about $500k revenue 12 months to date. Professional Analysts put stock target at twice first listing price. Had been around 10 years. Products in market for years. Market cap now $235M.Trading at or below cash.

Wow, that reminds me of Agillion, a dot-bomb which got $40 million of VC investment and $20 million in loans and had "hundreds of dollars" in sales. Plus $200k the founder(s) paid for the code in the bankruptcy.

[1] https://www.dcpartners.solutions/2022/02/agillion-what-was-i...

Fast raised $100m in January 2021 and went bust a year later, they burned $10m per month and their revenues were like $300k

At least they were named well.

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.

Two companies with highly trafficked sites are making great money selling ads.

What next the same introduction to every startup pitch deck ever - “if we capture $smallPortion of $hugeMarket we can be worth trillions”!

Loads of companies make great money selling ads. Sure, most don't make billions in profits, but even apps like Snapchat are able to do billions in annual revenues every year selling ads. And many companies are able to make tens or hundreds of millions selling ads.

Also I was just using ads as example of how digital real estate can be monetised. I'm not a Substack user so I might be mistaken, but I believe most of their revenue comes from their subscription model. The point I was making was just that if you create something that millions of people use whether or not you're aggressively monetising it today, there is still some theoretical value that you can assign to those eyeballs and that engagement.

Snap made a little over $1 billion in revenue last quarter and had a net income of -$360 million. Thads yet another fallacy of the startup mentality (yes I know snap is public). Judging “success” by revenue and not profit. Anyone can sell dollar bills for 95 cents.

Also see Yahoo. Yahoo was one of the most trafficked websites for almost two decades and couldn’t really profit from it after the dot com bust.

> Valuations are based on future performance, not current performance.

In the public markets, maybe. In the VC markets, valuation is more linked to how much VCs like 'the idea' as opposed to whether they think it could succeed .

On the flip side, how does a blog platform cost more than $9M per year?

I would guess mostly marketing—building the brand and the audience. Also recruiting writers to the platform.

Doh, cross-posted the exact same thought!

You pay writers to come to your site and all the other marketing gumph.

One big difference. Substack is push, blogs are pull.

Managing the reliable sending of millions of subscriber emails is expensive.

How much?

Mailchimp charges $12K/year for 150K contacts and 180 emails/contact/year.

(Above that is "call us" pricing.)

At that rate, it is about 10c per contact per year. Substack has 500K paying reader-subscribers, 10-20x that in "total readership", whatever that means, and "millions" of readers (but I believe those are web viewers).

https://backlinko.com/substack-users#how-many-paying-subscri...

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)

Simple answer: it's not.

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.

$9M isn't too much; it's close to a pure play.

ROI: https://www.youtube.com/watch?v=BzAdXyPYKQo

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?

https://en.m.wikipedia.org/wiki/Fucked_Company

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.

Also consider growth expectations.

Most startups that Substack is competing with for funding (mostly SaaS services) get to keep 100% of their GMV. So using $9M as their revenue number is the right way to value them.

Cost of goods sold is always deducted before reporting revenue, otherwise companies like Uber, Lyft, Doordash, Amazon, Stripe, Square that pass through most of their receipts would all seem 10-100x bigger than they actually are.

> Cost of goods sold is always deducted before reporting revenue

According to whom?

Did you mean "Gross income", not "revenue" ?

https://www.investopedia.com/terms/c/cogs.asp

> COGS is deducted from revenues (sales) in order to calculate gross profit and gross margin. Higher COGS results in lower margins.

> Amazon

https://www.wsj.com/market-data/quotes/AMZN/financials/annua...

In $Billons:

    Sales/Revenue +469    Top line
    COGS incl. D&A -272    Reductions
    Gross Income =197  

    SG&A Expense -172

(leading to $25-$50B bottom line income depending on which reductions you care about)

The potential "capturable" net income from operations is what matters in the end.

Retail tends to have large revenues and tiny margins. I can say Amazon retail should be worth more based on their revenue, but when their margins are 0 or negative, that would be dumb

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.

$9M in revenue in a year when many people had plenty of time to read? Oof.

Substack is close to an amazing business model, but literally one or two engineers can make this.

What's their to scale ? It feels like a really over engineered solution to a basic problem.

Running a business is more than just engineering.

I guarantee you they had more than 2 engineers on this thing.

It's as if you need to hire to prove growth, even if people aren't doing much

Interesting to note that a decent chunk of this 9M goes directly to Stripe. SS has all these writers and subscribers but is making peanuts.

A much bigger chunk is probably going to AWS. Doesn't Substack use Amazon SES?

mailgun

Selling picks and shovels to those who sell picks and shovels is a lucrative business, huh?

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.

They probably overpaid for bunch of ppl to join

I think they paid that much just to get comic book creators to join.

I did t even know there were comic books on substack

I suppose the closest analogue would be the LIV tour in golf. Substack came calling and tried to pull away a number of big names from DC, Marvel, and Image with promises of pre-payments for creator-owned projects and full editorial control. I think some of them are starting to realize that self-publishing is far more expensive independently (given that you are responsible for paying the artists, letterers, etc) than finding a publisher for your work.

https://archive.ph/UB59U obligatory paywall bypass

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 offered contracts to a tiny sliver of writers. Most journalists can look at the names they gave contracts to and could figure out that what those names provide is commentary, rather than journalism. Journalists usually prefer the latter.

> Substack was offering guaranteed contracts to writers worth more than their subscription revenue could justify

That isn't what I read. Their big payments (which weren't structured as advances but as guarantees for which writers had to forgo X months of subscription revenue) to big name writers ended up being lower than the standard author cut of the subscriptions those writers generated. So much so that this might account for a significant part of the $9MM.

I'm only going off a few media reports from what was disclosed, you're technically correct but the guarantees were in excess of what they would likely have earned from subs.

https://www.nytimes.com/2021/04/11/business/media/substack-n...

This writer had 18k subs at $50/yr ($90k/yr revenue, of which Substack would take 10%) but was paid $430k for 2 years. Maybe they grow their reader base to close some of that gap but it's still a loss leader to build reputation. It's possible some other writers took less favorable deals but I haven't seen the details.

> [...M]any of the writers who took advances now regret doing so: They would have made more money by simply collecting subscription revenue, and paying Substack 10 percent, [rather] than making the more complex deals with money up front.

> The former Vox writer Matthew Yglesias calculated that taking the advance wound up costing him nearly $400,000 in subscription revenue paid to Substack. The writer Roxane Gay told me she earned back her advance within two months of starting The Audacity ($60 a year) with an audience of 36,000, about 20 percent of them paying.

Your article was a reference for what I said, and I remember running into a few others.

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?

Real writers have day jobs.

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?"

You would probably be better served by fixing your damaged relationship with the techology rather than declaring it to be the wrong answer a priori. Perhaps a middle ground, like Thunderbird or Vivaldi's RSS readers, would suit you. Don't use the clients for mail, just try it out as a feed reader only, to avoid the negative expectations.

One of the big advantage of the mail-style presentation is the client indexes the content and gives you full-text search of the stories you've read. Once you get used to that it's hard to go back.

> Real writers have day jobs.

What a great quote!

> Real writers have day jobs.

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.

If you add /feed on a substack site there's a RSS feed for it. I don't know about paid substacks, but that's how I consume a few free ones.

Even in the paid substacks, some fraction of the articles are available for free. And the articles that are reserved for paid subscribers still display enough of the beginning of the article to get the most important points across.

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.

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.

In this scenario, Substack is Spotify. They look at who was doing well on the RSS circuit (the top 1% of bloggers), pay them to abandon RSS and have them post within the confines of your walled garden.

>>Real writers have day jobs.

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.

Substack is also a way to financially support writers and artists who have been pushed out of traditional media, or are too niche to fit in mass market publications.

It would help writers and readers if Substack bundled groups of writers together, perhaps by genre/type/subject like a magazine, and for the current cost of one subscription newsletter have 5 newsletters that the subscriber/paying customer can choose to assemble to create their personal "magazine." This would allow the reader to financially support more writers/artists, which would allow more of them to continue publishing their work and grow.

Hmm, RSS. That's something I tried and basically forgot about. What's a good way to find decent RSS feeds to follow?

Google and github are your friends!

"awesome rss feeds site:github.com"

But you can start with any publications you already subscribe to (newspapers, magazines, etc).

See if any people you respect write blogs, follow those links and see if those people write blogs, etc.

> "awesome rss feeds site:github.com"

First few of those it found had a lot of links, sure!, but no commentary around them to explain why they are awesome which is the other half of the discovery problem, no? If I have to click 50 links to find out what they are - and they generally link to the RSS, mind, without a link to the website which means that clicking will only give me a "Do you want to open this in ReadKit?" prompt - I've got better things to do with my time, really.

That's a fair criticism. I'd very lightly push back that sifting through some random links might very well be worth your time if you spend a large amount of time in an RSS reader. I also think it's table stakes for a good feed reader to make it easy to add/remove feeds, for the sake of sampling new ones.

There's probably a better way to discover than sifting through large lists with zero commentary, but if you're starting from literal zero, a big list isn't an awful place to start.

It'd be interesting to seed some pagerank-like crawler with blogs you enjoy, so you could use its outputs as your "try this out" list. I've experimented with building something like it in the past, it's an entertaining task for sure.

Some bloggers also have handy pages designed to give you a high-strength outbound signal, e.g. https://jvns.ca/blogroll/. It's worth seeking those out, where they exist.

I used Feedly every day. I don't actually use it to discover RSS feeds, though; more often I see some site and put it into their Add function, and it finds the feeds in it.

Some stories are still behind paywalls (e.g. The Local in Munich), but you can at least read the headlines.

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.

They must still be hiring engineers because I had a recruiter hounding me Monday

What's the value of their subscriber list?

$0, because they don't have an advertising platform.....yet.

Subreply is laying off its only employee. :)

What a terrible business name. "substack" -> "subscription stack", a cool product to help people sell subscriptions. OK, that's great. But then to go to the paying customers with that name?

It's like Walmart calling themselves "Efficient Logistics", or Microsoft calling themselves "StableABI"

Sad to feel sorry for a company that smugly told people from Twitter not to apply

Had to look it up, seems kinda gross: https://www.newsweek.com/substack-rejects-twitter-employees-...

Substack's founders have been vocal about supporting free speech[0]. So it makes sense to me why they wouldn't want people holding the exact opposite views to the point of quitting.

[0] https://on.substack.com/p/substacks-view-of-content-moderati...

There are reasons to not want to work for Elon Musk other than disagreements over free speech.

Yeah I think that is completely fair but the tweet states "If you’re a Twitter employee who’s considering resigning because you’re worried about Elon Musk pushing for less regulated speech… please do not come work here."

I find Musk vile, but I haven't seen many other reasons cited; all I hear is that he was threatening to let the "actual nazis" run wild.

I think it's funny and relatable.

I am trying to care, but despite thinking Substack sounded like a great idea when first launched I have sadly not been able to read their articles since they reject my browser and choice of privacy technologies for read-only access.

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