Beware: Do NOT Invest In This Awesome Startup

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A few weeks ago, a startup set out to raise capital from investors like you.

It quickly raised $100,000… $1 million… $5 million.

And now, with just 24 hours left to invest in it, it’s raised about $8 million.

Clearly, this opportunity has caught investors’ attention.

So why am I pounding the table saying DON’T invest in it?

For the answer, read on.

The Substack Story

The startup I’m talking about is called Substack.

Substack is a platform for writers. It helps writers email their content to readers like you — and importantly, it helps them χρέωση για αυτό.

Many writers are making a living from it. Specifically, about 17,000 writers are earning money, with the top 10 collectively making more than $25 million annually.

The company was founded in 2017. Here’s a snapshot of its first few years:

2018 — Graduated from the Y Combinator accelerator and raised $2 million.
2019 — Raised $15 million led by Andreessen Horowitz, a top VC.
2020 — Hit 100,000 paid subscriptions.
2021 — Hit 1 million paid subscriptions. Raised $65 million, again led by Andreessen.
Today, the company boasts more than 35 million monthly active subscriptions, with about 2 million readers like us paying for a subscription.
The company did about $10 million in revenues in 2021. In 2022, according to Η Verge, it probably did about $18 million.

It’s tough to argue with its progress. And as the company says, it’s aiming to build a “new economic engine for culture.” It’s tough to argue with that, too.

Everything sounds pretty good, right? Maybe even great. This is an exciting enterprise.

So why am I telling you to NOT invest in it?

The “10x Your Money” Rule

To explain, let me back up a minute…

When Wayne and I first launched Crowdability, we conducted a deep research project.

Our goal was to identify a proven process for picking successful startup investments.

Κατά τη διάρκεια ενός έτους περίπου, συναντήσαμε περισσότερους από τρεις δωδεκάδες από τους πιο επιτυχημένους επενδυτές startup στη χώρα. Εκείνη την εποχή, αυτοί οι επενδυτές είχαν υποστηρίξει συλλογικά περισσότερες από 1,080 νεοφυείς επιχειρήσεις και είχαν αποφέρει κέρδη πολλών δισεκατομμυρίων δολαρίων.

Και σταδιακά, μας έμαθαν δεκάδες εργαλεία και «κόλπα» για να εντοπίσουμε επενδύσεις που κερδίζουν.

Αλλά από όλες τις στρατηγικές τους, μία ήταν η πιο πολύτιμη με διαφορά:

How to identify the investments that can return 10x your money.

Πηγαίνετε με τις πιθανότητες

In case you didn’t know, startup investors earn their profits in two main ways:

Η εκκίνηση γίνεται δημόσια σε μια αρχική δημόσια προσφορά (IPO). ή
Η startup αποκτάται.

IPOs can lead startup investors to massive profits, but IPOs happen very infrequently.

Ο πιο συνηθισμένος τρόπος για τους επενδυτές startup να κερδίσουν τα κέρδη τους είναι μέσω μιας εξαγοράς — με άλλα λόγια, όταν μια startup στην οποία επένδυσαν αναλαμβάνεται από άλλη εταιρεία.

To put the numbers in perspective: In 2020, there were about 480 IPOs. But during the same time frame, there were about 12,000 εξαγορές.

So, how can we spot potential takeover targets early — so we can cash out for big gains if and when they get acquired?

«Κάθε μάχη κερδίζεται πριν γίνει ποτέ»

Για να απαντήσω σε αυτήν την ερώτηση, επιτρέψτε μου να σας πω για έναν από τους επενδυτές που συναντήσαμε κατά τη διάρκεια του ερευνητικού μας προγράμματος εκκίνησης.

Πριν αυτός ο κύριος γίνει επιχειρηματίας καπιταλιστής, ήταν υψηλόβαθμος στρατιωτικός.

Καθώς περιείχε τις συνομιλίες μας με αναφορές σε «καταιγισμό στις παραλίες της Νορμανδίας» και «τη Μάχη του Little Round Top», ανέφερε συχνά μια συγκεκριμένη έκφραση:

«Κάθε μάχη κερδίζεται πριν γίνει ποτέ».

Καθώς αυτές οι λέξεις σχετίζονται με την επένδυση, ορίστε τι εννοούσε:

Certain actions you take before you make an investment can determine your ultimate success. And one of the most important of these actions is this:

Filtering out investments based on their εκτίμηση.

Η σημασία της αποτίμησης

Valuation is another way of saying “market cap.” It’s the total value of a company. For public companies, we say market cap. For startups, we say valuation.

Και εδώ είναι το πράγμα:

Despite what you read in the press about big-ticket takeovers — like Facebook buying WhatsApp for $19 billion — the sales price for most startups is less than $100 million.

In fact, according to PricewaterhouseCoopers and Thomson Reuters, the majority of acquisitions take place under $50 million.

Έτσι, εάν ο στόχος σας είναι να κερδίσετε 10 φορές τα χρήματά σας σε μια startup που μπορεί να αποκτηθεί για 50 εκατομμύρια δολάρια, πώς «κερδίζετε αυτήν τη μάχη»;

Simple: invest at valuations of $5 million or less.

And that brings us back to Substack…

The $585 Million Startup

As you learned above, Substack raised $65 million in 2021.

At the time, its valuation was $585 million. That’s about 100x higher than we generally recommend. But keep in mind — that was during the boom-boom days, before the Federal Reserve started raising interest rates.

Since then, valuations have tumbled. So when the company went out to raise $75 million to $100 million from venture investors on favorable terms last year — TechCrunch reports it was aiming for a $750 million to $1 billion valuation — it couldn’t.

So a few weeks ago, it decided to raise money from the writers on its platform as well as from investors like you — at the “old” valuation of $585 million.

That doesn’t seem like a fair price.

What would be fair? Well, without knowing all the company’s financials, it’s hard to say. But media companies like The New York Times or Vox Media tend to trade at about 1x to 2x revenues. So maybe — maybe? — $20 million to $40 million.

In other words, unless Substack reveals that it’s on pace to do $250 million to $500 million in revenues this year — or plans to get there in short order — I’m compelled to state something plainly to you:

Do not invest in this funding round.

Exceptions To Every Rule

Obviously, there are exceptions to every rule.

For example, if you’re inspired by Substack’s mission — which is commendable and exciting — perhaps you might choose to support it.

And if you’re a writer who’s making his or her living from Substack, that’s άλλος reason to support it.

Furthermore, if you have an expert to guide you, you can always consider investing in startups that are more highly valued. After all, many investors considered companies like Facebook or Airbnb “wildly overvalued” when they were worth $10 million or $100 million or $1 billion. Now they’re worth hundreds of billions.

Perhaps Substack is in the same rare air.

If you’re interested in learning more about Substack and its funding round, Κάντε κλικ ΕΔΩ "

But when you’re just getting started in early-stage investing, limiting your investments to startups that are valued at $5 million or so is a smart strategy to stick with:

This strategy will give you the greatest chances of potentially earning 10x your money.

Σας περιμένουμε.

Καλή επένδυση,

Best Regards,

Μάθιου Μίλνερ
Founder
Crowdability.com