Substack Submerging

As I mentioned on a previous Darkstream, the end of the cult of free and the decline of the equity markets is not looking good for companies dependent upon startup financing to leverage their growth.

Substack is desperate, huh? That’s what I understand from their fundraising email, anyway. They’re now hitting up retail investors for millions of dollars after they failed to raise last year.

After certain recent historical events, I have become skeptical of the term “financial inclusion,” a set of buzzwords for making financial services more available to people who are not stratospherically rich. Maybe my cynicism is because Facebook tried to launch a stablecoin for the “unbanked” that you nonetheless needed (at least, according to the now-scrapped plan) a credit card to use. Maybe it is because Robinhood made a big fuss about how many brand-new retail investors it brought onto its gambling platform. Or maybe it’s the proliferation of buy now, pay later services from the likes of Klarna, Afterpay, and Affirm (and now Apple.)

As we all know from reading our 10-Ks, past performance is not indicative of future results

Anyway, Facebook’s stablecoin play failed and was sold for parts. Robinhood’s share price has fallen by a third in the last year. Oh, and Gen Z’s credit card debt is growing fast and furious. So yeah, when someone talks about financial inclusion, I assume the game is afoot…

You see, the last time Substack raised, the Fed hadn’t started its rate hikes yet. Startups — like Substack — are particularly vulnerable to being squeezed when the interest rates go up. It gets harder to raise money because conservative investors can simply invest in safer assets.

Where’s the money, Lebowski?

And during that 10-year period I cited with those outsize returns, interest rates were low and valuations of private companies ballooned. Now, with interest rates coming back up, those balloons are popping. Some VCs are slicing valuations by as much as 95 percent. There may be even more write-downs coming. And following the collapse of Silicon Valley Bank, there’s a considerable amount of uncertainty in the VC world.

Substack certainly knows this. It tried to raise last year, seeking $75 million to $100 million from investors. But it had revenue of only $9 million in 2021, and a sky-high valuation on relatively little revenue was not the vibe in 2022. The company gave up. On its Wefunder page, the company says that the pre-money valuation on Substack is now $585 million, a 10 percent decrease from 2021.

Any time you see a new platform explode out of nowhere, you can be assured of two things. First, there is hundreds of millions of VC dollars behind it. Second, they are paying the creators a LOT of money to join the platform. Third, the money being made by the creators on a monthly basis is NOT all coming from the subscribers and supporters.

Remember, Clown World is ALWAYS fake and gay. It always attempts to substitute the inorganic for the organic. You just have to know where to look in order to see through the illusions.