Substack’s co-founders, from left, Hamish McKenzie, Chris Best and Jairaj Sethi in their San Francisco office in 2022. Photo / Lauren Segal, The New York Times
Substack’s co-founders, from left, Hamish McKenzie, Chris Best and Jairaj Sethi in their San Francisco office in 2022. Photo / Lauren Segal, The New York Times
Substack, originally a newsletter service, says its app now has millions of users interacting with its creators.
Substack began its life as a buzzy newsletter company, devoted to helping writers connect with paying subscribers. The startup was critical of social media and dismissive of advertising.
Nearly eight years later, Substackis pouring much of its effort into building a social network and warming up to the advertising business.
To fuel those ambitions, Substack has raised US$100 million ($168m) in funding from investors, including the Chernin Group, which backs sports, media and fan-focused businesses; BOND, a technology investment firm; Rich Paul, the founder of the agency Klutch Sports Group; Andreessen Horowitz, the venture capital firm; and fashion executive Jens Grede, a co-founder of the shapewear brand Skims. The funding round valued Substack at US$1.1 billion, according to two people close to the deal.
Substack’s business model is simple: users subscribe to follow creators on the platform, and the company takes a 10% cut of the revenue when those creators charge for a newsletter subscription or access to a podcast. That approach initially made Substack a writer’s haven, resulting in more than 5 million paid subscriptions and a stable of publishers, including short-story master George Saunders, historian Heather Cox Richardson and an exodus of journalists from traditional newsrooms.
But the latest investors are betting on an emerging product that could amplify its business. Substack’s app, introduced in 2022, allows users to chat with their favourite creators, watch live video conversations and write and share posts on their own feeds through Notes, a feature similar to the social platform X or Bluesky.
The Substack app now has millions of users that draw in new creators and subscribers, said Chris Best, CEO of Substack, and New Zealander Hamish McKenzie, its co-founder. They also said in an interview that Substack was planning to get deeper into the advertising business, which it previously criticised.
The sharp increase in Substack’s valuation – nearly 70% higher than its 2021 valuation of US$650m – is a validation of that strategy from Substack’s investors.
“The network is growing,” McKenzie said. “We’re in this new phase where people can come to Substack and not just publish, but also find new audiences and find new opportunity.” The company today is more interested in taking on YouTube than MailChimp.
The Substack office in San Francisco, March 16, 2022. Photo / Lauren Segal, The New York Times
Eric Newcomer, a tech journalist who publishes on Substack, reported in June that the company was in talks to raise funding.
That Substack’s next phase of growth would come from a social network and advertising might come as a surprise. McKenzie has been a critic of both, fulminating against what he called the “narrative frenzy” and “bedlam” enabled by toxic social media, in posts on the platform. In another, he called the ad model “busted”.
He said in an interview that Substack’s embrace of those models was not a change of heart, but “a recognition of new possibilities” enabled by the growth of the network and that Substack would not simply “copy and paste the old models that ruined social media”.
Substack’s investors are signing on, in part, because of the potential of both. Mike Kerns, a co-founder of the Chernin Group, said in an interview that he believed it was “inevitable” that the company would eventually develop a greater advertising capability for the sake of its writers.
“Their creators have told them that they want Substack to support advertising,” Kerns said. “We think it is a massive opportunity to launch a native form of advertising within the Substack ecosystem at some point.”
Roughly two years ago, Substack’s co-founders abandoned plans to raise money at a valuation of around US$1b and laid off about 14% of the company’s staff. Mood Rowghani, a general partner at BOND who co-led the most recent funding round and who will join Substack’s board, said that the company was before several trends in media – including the popularity of independent journalists – and that Substack had to wait for its bets to pay off.
“Culturally, although some of these trends were certainly in motion, they weren’t at the level where it tipped the culture,” Rowghani said.
