Venture Capitalists keep discovering that there’s no money in writing in different ways. Photos, videos—fine—but writing is immune to VC. Blogger, BuzzFeed, Twitter, Medium; Substack is just the latest example.

Having failed to raise $100 million from investors who are better off investing in higher interest rates (the God-tier scam), Substack is trying to raise less than $10 million from retail investors, who would also be better off investing in bonds or just going to the casino.

Publishing is the graveyard of startups and if the smell of bullshit around Substack is too much for Venture Capitalists, you can bet the venture reeks. This is not to say that Substack is a bad product. All of the ‘failures’ listed above were good products. They were all just bad businesses, and Substack is not immune to this.

Substack’s Business Model

Substack has released no financials or projections because fuck you, but we’ll napkin this out.

Revenue

The one thing they do claim is $300 payouts and after eyeballing this down to 2022 ($140 million) and calculating their 10% after fees, we get to an estimated revenue of $18.6.

Gross Profit

Their variable cost is sending email, which is surprisingly expensive. I calculated the costs to self-host my newsletter and sending 100,000 emails would cost me about $75 on SendGrid. For just sending email.

Substack says they have 35 million active subscribers. Assuming they get one email a week, that’s nearly 2 billion emails. That’s $1,500,000 on email alone. They’ll get better rates than me, so say a Milli on COGS, give or take.

So a GP of $17.6 million.

Profit

Then subtract your fixed costs, 95 employees at $100,000 each (lowball, barely adequate for the capitalist dystopia San Francisco) and you’re blowing out at least $10 mil on salaries.

Then there’s ‘marketing’, ie paying popular writers to goose your numbers. Substack lists Margaret Atwood, Kareem Abdul-Jabbar, Matt Taibbi, Bari Weiss, Andrew Sullivan, Roxane Gay, Matt Yglesias, etc as assets on their ‘prospectus’ but they’re really liabilities. Substack paid Matt Yglesias $250,000 to be professionally wrong on their platform, something he does on Twitter for free. None of this contributes to the fundamentals of the business, and none of these people will stick around if you stop paying them. It’s marketing, and temporary. Assuming that they’re blowing out at least $10 mil here and you’re already out of money.

Dividends?

LOL what. $1,000 ‘invested’ at a $585 million valuation is 0.00017% of a negative number. There are no profits to divide and there are no dumber investors on the horizon to offload this turd onto. It’s just a bunch of retail investors left holding the bag for another year of fun with email.

Not A Bad Product

Again, Substack isn’t a bad product. I pay $480/year to host my newsletter on Ghost and it’s a pain, I could have taken that subsidy from Substack and written happily. But I’ve lived through the failure of Blogger, BuzzFeed and the zombie existence of Medium. I simply didn’t trust them and I trust them even less now. Beware of geeks bearing gifts.

The subsidy Substack offered writers is not turning into a bezzle. They’re asking working writers to ‘invest’ in Matt Yglesias’s salary. Which is going to evaporate in a year, along with whatever numbers him and that elite crew were bringing in. This might even leave a marginally profitable business, but that is something VCs have no interest in, and they still own the place. They’ll sell it for parts or just throw it away.

Greater Fools

Substack is trying to spin failing to raise money from idiot VCs as a success for democratic financing, but they’re really just looking for greater fools. People that will ‘invest’ in something with no proper financials and no projections, because vibes, and changing the world and shit.

In ‘opening this opportunity to writers’ they are transitioning to a business model suspiciously close to Multi-Level Marketing. And getting regular writers to pay the bonuses of elites is an especially insulting concept of investment. Getting workers to give both their labor and capital is the quintessential Silicon Valley bezzle, the final innovation of late-stage capital, where the worker is also an ‘owner’. Of a shitshow.