When newsletter platform Substack launched a crowdfunding campaign last month, one of the criteria it had to follow was to publish its financials for 2020 and 2021, which surprised many by showing a year of negative income.
Specifically for 2021, while the company had total gross revenue of $11.9 million, it ended having total revenues in the red after recording partnership expenses–mostly comprised of what the firm pays its writers on deck. It also reported $22 million in net losses and $55 million of cash on hand.
Substack raised $65 million and burned $25 million in 2021, after posting negative revenue of $5.2 million.
The disclosure comes after the firm used the crowdfunding platform Wefunder to raise more than $7.5 million at a $585 million pre-money valuation from its writers and fans.
Crowdfunding rules require Substack to disclose “financials… for the 2 fiscal years prior to the most recently complete year,” since the crowdfunding happened within the first 120 days of the fiscal year. It could have included all or part of the 2022 financials, but elected not to.
“We’re a private company, so we’re releasing what we’re required to release,” explains Substack co-founder and CEO Chris Best.
Many observers suspect that the firm is in deep financial trouble, most especially after the crowdfunding move, which in itself came after the company failed to do another investment round in 2022 to raise $75 million to $100 million.
Links to Substack were also reportedly being restricted on Twitter after the former launched its Twitter-like platform Notes, poised to be an alternative to Elon Musk’s social media platform.
But, Substack spokeswoman Helen Tobin clarifies that “Substack is not in financial trouble.” She added that the newsletter platform “is not heavily restricted on Twitter [and] it’s not on the ropes after failing to raise capital.”
“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,” Tobin wrote, referring to the crowdfunding move.
The representative further wrote that Substack has over 35 million active subscribers, 2 million of which are paid. The platform also employs almost 17,000 individuals, with the top ten writers making more than $25 million.
Tobin also clarified that Twitter restricting Substack links “is over… it was restricted, but… it’s outright false to say that it currently is.”
Nevertheless, what’s clear is the firm recorded a negative revenue in 2021 and given what has been publicly reported about the company’s dealings in 2022, many observers–even a competitor–are seeing a trend of an unhealthy financial situation.
Information for this briefing was found via Verge, Axios, BoingBoing, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
