Substack denies reports of financial trouble (updated)

After links to Substack were heavily restricted Friday on Twitter, the newsletter platform's CEO publicly accused Elon Musk of lying about it. At The Verge, Elizabeth Lopatto writes that it was running out of money after failing to raise more capital last year, "hitting up retail investors" when VCs were not forthcoming. Substack is on the ropes.

It tried to raise last year, seeking $75 million to $100 million from investors. But it had revenue of only $9 million in 2021, and a sky-high valuation on relatively little revenue was not the vibe in 2022. The company gave up. On its Wefunder page, the company says that the pre-money valuation on Substack is now $585 million, a 10 percent decrease from 2021. And now Substack has turned to Wefunder and retail investors. Friends, I do not like it, not least because the VCs last year got a pitch with Substack's annual revenue, and I do not see that shit line-itemed anywhere on the Wefunder page. Where's the money, Lebowski? Substack makes its money by taking a 10 percent cut of the subscription fees its newsletter writers charge. (Its payment processor takes another 4 percent, according to Wefunder.) The company says it paid out more than $300 million to writers, cumulatively.

$300m paid out to writers–a great thing–on $9m in revenue. The squeeze has to come. The product and the pitch is excellent, and I hope it succeeds, all told–but the squeeze has to come.

If you blew up your mainstream employability to be a substack guy and you aren't already rich as a result, here you go.

UPDATE: Substack's Helen Tobin writes in to say that "Substack is not in financial trouble. It is not heavily restricted on Twitter. It's not on the ropes after failing to raise capital."

Substack has more than 35 million active subscriptions, including 2 million paid subscriptions. More than 17,000 people are earning money on Substack, and the top 10 writers earn more than $25 million.

Just last week, the company raised millions in a community round, and it's false to claim that "after failing to raise more capital, Substack is on the ropes." Substack literally just raised capital.

Further, Twitter's decision to throttle links on Substack is over, so the claim that it's restricted is false and needs to be corrected. You can write that it was restricted, but again it's outright false to say that it currently is.

In addition, more than 40% of free subscriptions and 15% of paid subscriptions come from within the Substack Network. Writers such as Anne Helen Petersen and Lenny Ratiscky have posted about this, and how the Substack network — not Twitter– is the most important part of their growth.