Many critics (especially those in media) have been questioning Substack's $65m raise.

"Why raise so much capital??"

I think it's genius. Here is why:

Substack has done an incredible job at 2 things.

1. Building the easiest way to start a newsletter
2. Building a brand

Substack is the Kleenex of ESPs. Many even use the terms "Substack" and "email newsletter" interchangeably.
However, Substack's product is currently a commodity. This isn't a knock on the product, they are early!

However, they take a % of revenue, whereas many competitors take a flat rate.

For example, Ghost is a much better economic alternative.
As you scale on Stack, the economic disadvantage to being on Substack gets big.

A $100/year newsletter with 5,000 subs would pay ~$50,000/year for the service.

The same newsletter on Ghost would pay ~$250/year.
So how does Substack build an economically viable business where creators don't leave for a cheaper alternative?

2 ways.

1. Stay lean and bootstrap! This is a huge market, and definitely does not have to be a winner take all
2. Help writers generate more revenue.
When they took $15.3m in series A funding from a16z in 2019, they threw #1 out of the window. They need to go BIG + OWN the market.

So now, all focus is on #2. How can SS help writers make more money?
Substack has 2 options for helping writers make more money:

1. Discovery: Help writers open up their top of funnel by bringing them traffic
3. Help them convert a larger % to paid

So how do they do either of these?
This where the $65m comes in

Substack is going to blitzscale the content creator world via the Substack Pro program. Not just journalists -EVERYONE. Millions of dollars

If you have an audience, Substack is going to offer you an advance to leave your job and start a Substack.
This will do 3 things.

1. Bring writers to Substack who otherwise wouldn't want to take that risk
2. Bring a lot of new readers to SS
3. Generate a ton of brand awareness
So why do this?

These contracts are temporary after all... Once their advances are up, they are allowed to take their audience elsewhere. They own the emails!

A few reasons...
First, they may try to turn SS into a consumer brand.

As @benedictevans has pointed out, Substack can leverage big names to become a consumer brand. They will try to get users to show up to Substack dot com.
This will bring writers net new subscribers vs. porting their audience over from Twitter.

All the sudden, Substack is helping you grow your list... Discovery....

All the sudden, the 10% fee may start to feel cheap.
The second reason to raise $65m for creator advances is for bundling.

Can Substack figure out bundle economics? Can they find multiple newsletters to bundle together and convince people to pay who otherwise wouldn't?
Only time will tell, but they definitely can't without enough writers on the platform.

Tough to bundle if you don't have much to choose from.

Having thousands of successful writers on the platform gives them the data they need to test bundling.
So, do I think Substack will become a multi-billion dollar business and transform the media industry?

I'm not sure. But, once you get on the VC treadmill, you can't get off. Raising the $65m to offer advances to hundreds of successful writers is the right move.
A few additional thoughts:

The substack opportunity is not to poach 1m journalists but rather to create 1m new content creators
One way I like thinking about the TAM:

If they can get 2500 writers to 2500 paying subscribers at $150, that’s 100m ARR.

Getting there doesn’t seem *that* though. Staying there does.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Austin Rief ☕️

Austin Rief ☕️ Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @austin_rief

11 Apr
B2B businesses are at a big advantage if early employees have large Twitter followings

-There's no better place than Twitter to do B2B marketing at scale
-People care about people, not brands (and def not early B2B brands)
"Building in public" on Twitter will get early customers excited about what they're building.

These B2B brands make up their salaries 10x by having them build in public.
This doesn't mean you can't succeed without an audience.

Many can and will continue to do so. But having an audience and free access to decision makers is a huge advantage.
Read 7 tweets
9 Apr
1/ This is what so many smart investors got wrong about the newsletter space.

They only focused on CACs. Yes, newsletters acquire some subs via paid marketing.

But the ongoing relationship with your customer makes 10-100xing LTV over time very doable.
2/ At @MorningBrew, we had faith that if we could scale the list and keep our quality, our LTV growth would outpace our CAC growth.

And it did. We've launched:
@Retail_Brew, @etechbrew, @MarketingBrew, @SidekickMB, @bizcasualpod, @FoundersPod, and MANY more products to come.
3/ We will continue to create content that our audience cares about. This will grow LTV even further, which will in turn allow us to acquire more subscribers, even as CACs rise.

3m subs, and we are only getting bigger :)
Read 4 tweets
4 Apr
Someone should explain to him how jobs are created.
The zero sum progressive mindset is toxic - and this is coming from a progressive.
We just printed 3 trillion dollars. Don't tell me the only way to pay for things is corporate taxes.
Read 5 tweets
14 Mar
THREAD: Today is @MorningBrew's 6th birthday.

It has been an incredible journey and I am even more excited for what is to come.

Here are 5 things I've learned so far about running a start-up:
Growth is uncomfortable.

Learn to embrace being uncomfortable - it will make you better.

This goes for both personal and company growth.

If you don't feel uncomfortable from time to time, you probably aren't challenging yourself to grow fast enough.
Increase hiring standards as you grow

In the early days, you often don't have a wide choice of who you can hire, but that changes with time. Take advantage of it

I have never regretted waiting an extra week to find the right candidate, but I have regretted hiring too quickly
Read 7 tweets
25 Feb
Alright Alright Alright. Twitter is launching "Super Follow".

Who would pay for my tweets?
Would you pay?
Thaaats what i thought.
Read 4 tweets
9 Feb
1/ THREAD: @HubSpot's acquisition of @TheHustle is a great example of a niche, vertical media business acquisition.

Here is what that means, why it makes sense, and why it doesn't happen more often.
2/ First off, this trend isn't new. There are a ton of great examples of this:

- Penn x Barstool Sports
- Stripe x Indie Hackers
- Robinhood x Market Snacks
3/ So, why would a software business acquire a media business? 2 main reasons:

1. Owning a top of funnel with a trusted audience
2. Multiple arbitrage
Read 9 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!