/How booming newsletter platform Substack is inventing a new model for media companies – Business Insider

How booming newsletter platform Substack is inventing a new model for media companies – Business Insider


  • The newsletter platform Substack recently announced the winners of its Substack Fellowship program, awarding 15 writers over $355,000 in funding for their newsletters.
  • Because Substack charges a 10% service fee on monetized accounts, the funding acts like an investment.
  • The program shows how platform’s technology turns individual writers into small businesses, on which investors (in this case, Substack) can seed with capital in exchange for a revenue-share arrangement.
  • Right now, only Substack itself has taken advantage of the new business model, but if the concept works other investors might follow suit.
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On Monday, the newsletter platform Substack announced the winners of its newest batch of fellowships: 15 recipients in total, divided into one senior fellow, nine fellows and five honorable mentions. All told, the company awarded $355,000 in funds.

Unlike in a traditional arts grant, Substack levies a 10% service fee on the revenue generated by its fellows’ newsletters. Substack charges this fee on all its paid newsletter services, allowing writers to keep 90% of the revenue they generate and sending the remaining 10% to help Substack keep the lights on. Charging such a fee is standard practice for a free-to-use platform.

Where it gets interesting, though, is that because Substack profits off the potential success of these newsletters, the company is essentially investing in the newsletter products — and by extension the writers — as if they were tiny startups.

The writer as small business

This entire premise is made possible by Substack’s technology stack, which allows writers to monetize their output by putting it behind an easy-to-use paywall. It turns a writer’s talent and body of work into an asset.

Imagine a popular writer decided to start a Substack newsletter. They know that, over time, the number of subscribers to their newsletter will grow, which will increase their revenue every month. 

But perhaps they could use an infusion of capital immediately, to pay off a bill. Or perhaps a large sum of money would help the writer focus more fully on their newsletter, expediting its growth. Maybe the writer is not sure their newsletter will succeed, leaving them more amenable to the idea of accepting a lump sum payment in exchange for part of their “company,” i.e. the newsletter.

These hypotheticals open the door for an outside investor to offer this newsletter-writer capital in exchange for either equity in their “company,” or an ongoing revenue-share agreement, which is what Substack currently does.

The writer gets access to capital that they can either hold on to or use to supercharge their newsletter. The investor gets in early on a potential financial payoff if the newsletter proves successful. It’s investing as usual, except for this time the “company” being invested in is a newsletter writer.

Safe, small-scale bets

Peter Rojas

Investor Peter Rojas says that the Substack model resembles a small business investment.

Peter Rojas


Peter Rojas, a partner at the venture capital firm Betaworks Ventures, says the premise is intriguing, but the limited opportunity for scale narrows its appeal.

“From a venture capital standpoint, I wouldn’t invest in a Substack newsletter because it won’t generate a big enough return,” said Rojas. “A newsletter is not going to turn into a $100 million business and IPO.”

But, says Rojas, who co-founded the technology blogs Gizmodo and Engadget, the model offers ample opportunity for smaller, but still sizable investments that are safer than venture capital.

“You can think of it like a small business: I’ll give you $50,000 for a share in future revenue. It’s a helpful investment tool for a project that you want to see succeed, though not necessarily one that is a financial powerhouse,” said Rojas.

A newsletter portfolio

Investing in a newsletter could still be lucrative. If an investor had a 10% revenue share in a newsletter that reached 3,000 subscribers paying $10 a month, they would net $36,000 a year, assuming that the subscription numbers didn’t grow.

While such a return is small potatoes for a venture capitalist, it’s a tidy sum for an individual investor. Plus, if an investor seeded multiple newsletters and created a portfolio, they could easily up their returns into the six-figure area, which is exactly what Substack is doing.

The company’s entire business model is predicated on the 10% service charge, so the revenue-sharing concept is not new. But Substack investing money in its newsletters, then cashing in on its revenue share? That’s an investment portfolio in the making.

Right now, only Substack itself understands the potential investment opportunities afforded by this new model. They are the only ones investing in the newsletters and the only ones profiting from their subscription revenues.

But if Substack’s new fellows turn a profit with their freshly financed newsletters, it might not be long before other investors come knocking.

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