7 Thoughts About Substack's $100M Series C
Choo choo, all aboard the Newsletter Express
Newsletter service, lightweight blogging service, and nascent social network Substack raised $100 million in fresh capital, it announced today. The new capital was raised at a $1.1 billion valuation ($1.0 billion pre-money), meaning that prior backers of the startup just earned a long-awaited, and previously unlikely markup.
Small-ball investors that took part in Substack’s equity crowdfunding round — raised when Substack found itself out of venture favor — are also likely enjoying a nip of upside.
Our main missive already went out, so we’ll get straight to work digesting the news. Here’s seven thoughts about the transaction from myself, a long-time Substack user, a professional scribbler and yapper, and fan of both startups, indie media, and private capital:
Obstinance is a virtue. Substack got the door shut on it by the venture community after the ZIRP-era bubble popped. It didn’t give up. Instead, it trimmed costs, raised more funds where it could, and endured. Now, with more favorable news winds blowing — a Trump administration is good for media generally, given its inherent and newsy regular chaos — and managed to grow its way to another venture round. The capital came later than Substack had initially wanted, but the riff that you can just do things also applied to startups and not throwing in the towel.
Substack’s new valuation implies enormous gross expectations. With a reported $45 million worth of annual recurring revenue predicated on some five million paid subscriptions as of March, Substack is a good sized business. But for a unicorn sans a good AI narrative — you could argue that Substack is akin to an anti-AI wager — a 24.4x ARR multiple is not cheap. Especially given that the company last took four or five months to add its most recent million paid subscribers (November 2024 to March 2025, roughly). It’s going to be hard to prove out its new valuation with just subscription growth, especially as what I would presume was an election-era bump to growth has cooled. So where will the growth come from?
We estimated the company was at around $50 million ARR just a few months ago. We were so close! Dammit.
Substack is getting into the advertising game, and that’s probably ok. The Times has a good rundown on the history between the Substack founding team and the idea of advertising-supported media. They’ve been critical. But as a current Substacker, I can tell you first-hand that it’s easier to build a free audience than it is to get folks to breakout their credit cards. With a new set of investors and a stated willingness to get into the advertising game, we can infer that ads are going to help Substack grow to undergird its new price. Cool. Beehiiv has proven that centralized advertising systems can work for independent creators. Here, Substack lags its rival, but could catch up if it staffs intelligently.
If CO ever receives an advertising off from Substack, we’ll share the details so that you can see how this may work in practice.
Substack has still not fully sorted out the graduation question. But advertising might help. Currently, $1 from every $10 that CO earns goes to Substack. From a very simple viewpoint, if you are a paid subscriber to this little blog — thank you! — you are also a regular contributor to Substack’s own success. The incentives are mostly aligned: I, the writer, want a nice platform to write on while owning my audience, Substack wants a little cut, and you the subscriber get to support indie media and indie media platforms in a single stroke. The downside is that the 10% scales quickly; now that CO has a five-figure run rate, we’re paying Substack four-figures per year, effectively. That is starting to feel expensive given that Substack is mostly a mailing service from our view. So, we may leave in the future. Substack shedding its most successful partner pubs is a risk to its long-term growth. Enter advertising, which could make the 10% cut Substack absorbs less painful. If the company can generate more than the 10% cut I pay it in incremental advertising revenue, why not stay?
Advertising will make the overall attention economy on Substack slightly worse. One of the worst decisions made in social media in recent years was the decision by X (Twitter) to pay out a portion of its subscription revenue to top tweeters. Why is it bad to share the pie? It’s not, but the way X currently works incentivizes people to attention hack, shitpost, bait, and generally act like ractist yahoos to attract dunks. This is the sin of advertising; it doesn’t always reward good behavior, clear thought, or discussion. It rewards engagmennt. Thus far Substack has dodged the issue by monetizing paid subs instead of eyeballs. As that changes, so too will the incentive stack on the service. Probably not lethally so, but I’ll bet you can feel it.
Substack has a great chance at a fat AI deal which could make its media economics far more attractive than they are today. If I took this newsletter’s content to OpenAI, and asked them to make a deal to license my data, they wouldn’t even laugh. Why not? Because they wouldn’t even hear me. CO is just too small a bite to bother reaching out for with a fork. But, say, all Substack pubs that opt into a group contract? That might be enough to get a winsome deal from someone, be it Sammy or someone else. Substack could then offer its writers fun deals. Would you rather get your AI check and pay us 10%, or just call it a wash, let us sell access to your data, and you don’t pay the 10%? You can imagine variations of that theme, but Substack in the AI era with opt-in consent could find real value in its underlying words.
Substack and its rivals (Beehiiv, Medium) will only grow in prominence as media melts down around us. Since starting Cautious Optimism, my home publication TechCrunch has been sold yet again, slashed, and now has fewer reporters on staff than the crowd a midsize PR agency could gather inside a single good-sized conference rooms while leaving room for chairs. That’s not a diss; it’s a cry for help from someone who loves journalism and publications and editors and reporters. But while media economics continue to shed staff and reward private-equity style tactics, Substack and friends are ready to absorb prior, traditionally-employed talent. That trend is perhaps accelerating; Substack’s raise is well-timed.
Beehiiv recently announced that it reached $20 million worth of ARR. Medium is profitable with more than one million paid subscribers (at $5 a pop, that’s around $60 million per year worth of gross revenue.) Perhaps we will see, in time, three newsletter IPOs. That would be a treat. Especially if their rising tide lifts small media boats.
Wouldn’t it be sick if more people could write for a living? In a world of infinite AI words, don’t you want more humans to speak? I do, and I think modern AI is super cool. Imagine how happy our Luddish friends would be.
Onward!