What’s the TAM for paid newsletters?

News broke yesterday that Substack, the popular newsletter publishing tool, called off fundraising plans for a Series C after a raise at its price target failed to materialize. The company’s revenue base, when compared with its hoped-for valuation, was too small to support the numbers that the startup had in mind.

This is not a unique story. Many startups that raised at high prices last year will run into snags as they try to attract capital at new, higher valuations. The why in this case has been the topic of conversation in technology circles for months now. In short, market conditions that led to a venture capital bonanza last year have slowed or reversed, leaving many startups sitting on private-market valuations that no longer translate to present-day investor appetite.

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Substack is striking a combative tone with media coverage of its fundraising exploits, telling The New York Times — which broke the news of the company’s Series C attempt — that its comment on the story was its jobs page. Certainly, Substack still has capital and is hiring, but that it wanted to raise more funds is also illustrative.

The Substack Series C saga is a good moment to refresh ourselves on just how much the market has changed. And what’s more, we can go back in time and vet our prior coverage of the company’s finances, grading what we mathed out when it last raised. Everyone is going to look a little silly, so let’s get into it!

Valuation mechanics

Recall that Substack last raised a $65 million Series B at what PitchBook described as a $675 million post-money valuation. Here’s the latest from the Times on what the company wanted to raise in a Series C:

Substack held discussions with potential investors in recent months about raising $75 million to $100 million to fund the growth of its business, said the people, who would speak only anonymously because the talks were private. Some of the fund-raising discussions valued the company at between $750 million and $1 billion, they said.

Notably, if Substack had raised $75 million at a $750 million post-money valuation, it would have been effectively a flat round from its Series B. That that valuation appears out of reach today implies that the only way that Substack would be able to raise a new round of equity funding would be with a valuation cut. Down rounds are not popular, so it isn’t a surprise that the company put its fundraising plans on hold at least for now.

Why did Substack struggle to attract high eight to low nine figures of capital at a nine- to 10-figure valuation? Because it had a seven-figure top line last year, the Times reports, writing that “Substack has told investors it had revenue of about $9 million in 2021.”

That nugget lets us do some interesting math: