Substack, a newsletter company that had trouble raising money last year due to a general slump in the tech market, is looking to its team of writers for its next round of funding.
In 2021, Substack raised $65 million in a Series B funding round led by venture capital firm Andreessen Horowitz at a valuation of nearly $600 million. It is now asking its writers, who can publish free or paid newsletters on the platform, for $5 million to give them a stake in the company.
When you’re Substack, $5 million isn’t a lot of money to play around with. However, it may give writers, many of whom rely on Substack for financial support, the incentive to spread the word about the service more broadly across the internet’s media landscape.
We believe that if the people who are building their businesses on Substack also own it, that will change the dynamics of the platform. And we’re doing it because it not only helps our business but also gives Substack users a chance to share in the financial rewards that come with helping to build the Substack network.
Wefunder is a crowdfunding platform where you can invest $100 or more in Substack. It had raised about $2.4 million as of this writing.
Some authors have already started to
For example, Eric Newcomer, a former Bloomberg reporter who now has hundreds of thousands of readers of his eponymous newsletter about startups and venture capital, pledged $5,000, which he called a “minuscule sum” in a post justifying his investment.
Newcomer wrote that the 10% cut that Substack takes from his subscription revenue is his real investment in the company, even though he already has substantial financial exposure to Substack’s performance by running his business on Substack’s platform.
Substack will have to disclose its audited financials as part of raising the crowdfunding money, as Newcomer noted as an additional incentive for investors.
Author Bill Bishop is “leading the round” with $25,000 in addition to his previous $100,000 investment, Axios reported, citing Bishop, Heather Havrilesky, and Anthony Pompliano, all of whom write about business and entrepreneurship.
The SEC rule change that allowed for this crowdfunding
Substack says it wanted to hire writers for its Series B round at first, but it was too challenging. However, the rules governing crowdfunding under the Securities and Exchange Commission of the United States changed in 2021. Crowdfunding limits for startups have increased from $1.07 million to $5 million in 12 months without having to register with the SEC.
Substack’s spokesperson Helen Tobin said the company increased its fundraising goal from $2 million to $5 million, the legal maximum under the new SEC rules, due to the “positive response” the announcement received.
Of course, Substack provides a catch for authors who want to increase their reliance on the service. The company’s creators issued a warning to potential investors, saying, “We want to make it clear that just because you can invest in Substack, it doesn’t mean you should.” “Investments carry a high degree of danger.”