Substack Raised Another $100 Million, Which, I Bet, Is Already Being Flushed Down the Same Toilet as Their First $100 Million

Sunday, 3 August 2025

One last post on my recent Substack kick. Yesterday I linked to Ana Marie Cox’s scathing analysis of Substack’s financials. She published that on June 23, and wrote about Substack’s $100 million funding round, with a $1 billion valuation, in the future tense. Substack indeed closed that round in mid July, raising $100 million, with a valuation of $1.1 billion. After which their triumvirate of cofounders sat for an apparently brief “interview” with Benjamin Mullin and Jessica Testa of The New York Times:

Substack’s business model is simple: Users subscribe to follow creators on the platform, and the company takes a 10 percent 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 five million paid subscriptions and a stable of publishers, including the short story master George Saunders, the 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 favorite creators, watch live video conversations and write and share posts on their own feeds through Notes, a feature similar to X or Bluesky.

If their business model were actually as simple as described, they’d already be profitable and wouldn’t have needed to raise another $100 million. They’ve already got a lot of subscribers. They’ve already got a stable of high-profile writers. They already keep 10 percent of what subscribers pay. And pointing to Twitter/X as the future model doesn’t exactly say “Well that’s the path to enormous profits.”

The sharp increase in Substack’s valuation — nearly 70 percent higher than its 2021 valuation of $650 million — is a validation of that strategy from Substack’s investors.

Or, this could be like when a guy who just lost every dollar in his pocket playing blackjack withdraws a few more grand from the ATM in the casino. That doesn’t “validate the strategy”. What would validate Substack’s strategy is showing proof of actual profits and profitable growth. And if they had actual profits and profitable growth they wouldn’t have needed to raise another $100 million.

“The network is growing,” Mr. 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.

This, to me, is the nut graf of the whole NYT piece. Substack since its debut has presented itself as a platform for writers to build publications for readers. That’s how everyone I know who would endorse Substack would describe it. Hamish McKenzie, the cofounder quoted here, proudly claims the job title “Chief Writing Officer”. Does a company “more interested in taking on YouTube than MailChimp [sic]” sound like a company focused on writers as talent and readers as users to you? (And it’s a little thing, but Mailchimp doesn’t style their name camel-case. You’ll be unsurprised to be reminded that The New York Times dismantled its previously crackerjack copy desk in 2017.)

Now let’s do some rough back-of-the-envelope math. The New York Times Company has a market cap of $8.5 billion. Just gut-feeling-wise, I do not think Substack is worth one-eighth of the Times, nor do I think they’re on a path to get there. The Times has around 11 million digital subscribers who all pay around $25–35/month, and a strong advertising business. Individual Substack publications tend to charge around $5–7/month, and Substack only gets 10 percent of that. So Substack only pockets like 50–70 cents per month from subscribers, per publication. (Substack’s 10 percent commission, again, is pretty high compared to competing platforms.) Substack currently has no advertising business at all, and many of their writers publish with them specifically because Substack, as we know it, has no ads.

I firmly believe one could build a very nice business taking 10 percent of subscription revenue for a blogging/newsletter platform, if you could get as nice a roster of popular writers to build on the platform as Substack has. I do not think that’s a $1 billion business, though. And if it were, they should, at this point, be able to get there on their own, without additional funding. They should have achieved profitability lift-off long ago.

But what do I know, other than running a profitable independent website for the last 20 or so years?