Substack opens a community fundraising round, allowing writers to invest in and own a portion of the business. The company announced on Tuesday that starting today, writers can make an investment of at least $100 through Substack’s Wefunder page. According to the page, Substack’s funding goal is $2 million. The company’s pre-money valuation is $585 million.
The company says it’s on a mission to build a new “economic engine” for culture, and to do so it needs to build some kind of network based on principles that give control to writers and readers. Substack focuses on building a subscription network based on creator ownership.
That has been announced by the company readers have paid writers more than $300 million through Substack, and that the platform now has more than 35 million active subscriptions, including two million paid subscriptions. Substack also revealed that more than 17,000 writers make money on Substack, with the top 10 publishers on Substack collectively earning more than $25 million a year.
“As Substack grows to accommodate more writers, podcasters, video creators, musicians, scientists and culture creators of all kinds, we see a path to hundreds of millions of subscriptions and significant cultural impact, which in turn will provide ample financial opportunity,”, wrote the company. “We are at the dawn of the subscription network era. This work will be ambitious and exciting, and it will make sense. We would love to have you by our side as we build this new economic engine for culture together.”
Substack believes that subscription networks are a step up from social networks, and that while social networks are associated with advertising and attention, subscription networks are about instant payments and trust.
The company explained in a blog post that after closing its $65 million Series B funding round in 2021, it was exploring ways to allow writers to invest alongside traditional investors, but felt it was too complicated, especially when it tried to include people who weren’t yet accredited investors. Substack says opening a community round is more viable now, especially thanks to crowdfunding platforms like Wefunder.
“We’re serious about building Substack with writers, and this community roundup is one way to materialize that ideal,” the company wrote in a blog post. “We do this because the dynamics of a platform like Substack change when the people who build their businesses on it also own it. And we do it because it not only benefits our business, but also provides an opportunity for the people using Substack to participate in the benefits that come from building this network, including the financial benefits.”
Substack notes that just because you can invest in the company doesn’t mean you should. The company says potential investors should be aware that there’s no guarantee you’ll get your money back, noting that you shouldn’t invest money in the community round unless you can afford to lose the entire investment.
The company’s Wefunder page indicates that non-accredited investors can legally invest up to $2,200. Substack says that if the round is oversubscribed, it may not be able to accept all investments and reduce individual investments, in which case users will be refunded the difference. If the round is oversubscribed, the company will prioritize Substack writers who have paid subscriptions and paid subscribers enabled.
The launch of the new community fundraising round comes as it was revealed in May 2022 that Substack had abandoned efforts to raise a Series C round after talks with potential investors about raising $75 million to $100 million at a valuation between $750 million and $1 billion, as reported by The New York Times. The decision to halt its financing efforts came during an industry-wide downturn as the venture investment market cooled. In June 2022, the company then cut 13 jobs, representing 14% of its workforce.
According to PitchBook, Substack has raised $86 million in three rounds of funding. In addition to a16z, it is supported by Fifty Years, Y Combinator, and entrepreneur Audrey Gelman. Given Substack’s current trajectory, it’s possible that the company is focusing on working for its clients (i.e. writers) rather than its investors and looking to become self-sustaining.