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 بار برای آن است.

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 در آستانه, 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 فرآیند اثبات شده for picking successful startup investments.

در طول یک سال یا بیشتر، ما با بیش از سه ده تن از موفق ترین سرمایه گذاران استارت آپی در کشور به گفتگو نشستیم. در آن زمان، این سرمایه گذاران مجموعاً از بیش از 1,080 استارتاپ حمایت کردند و چندین میلیارد دلار سود به دست آوردند.

و به تدریج، آنها ده ها ابزار و "ترفند" برای شناسایی سرمایه گذاری های برنده را به ما آموزش دادند.

اما از بین همه استراتژی های آنها، یکی از آنها با ارزش ترین بوده است:

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

با شانس بروید

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

استارتاپ در یک پیشنهاد عمومی اولیه (IPO) به صورت عمومی عرضه می شود. یا
استارت آپ تملک می شود.

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

متداول ترین راه برای سرمایه گذاران استارت آپی برای کسب سود، از طریق خرید است - به عبارت دیگر، زمانی که استارتاپی که در آن سرمایه گذاری کرده اند توسط شرکت دیگری تصاحب می شود.

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

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

"هر نبردی قبل از اینکه بجنگد برنده می شود"

برای پاسخ به این سوال، اجازه دهید در مورد یکی از سرمایه گذارانی که در طول پروژه تحقیقاتی استارت آپی خود با آنها آشنا شدیم به شما بگویم.

این آقا قبل از اینکه سرمایه دار شود، یک افسر عالی رتبه نظامی بود.

همانطور که او مکالمات ما را با اشاره به "توفان به سواحل نرماندی" و "نبرد لیتل راند تاپ" تند کرد، او اغلب یک عبارت خاص را ذکر می کرد:

"هر نبردی قبل از انجام آن پیروز می شود."

از آنجایی که این کلمات به سرمایه گذاری مربوط می شود، منظور او این است:

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 ارزیابی.

اهمیت ارزش گذاری

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.

و نکته اینجاست:

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.

بنابراین، اگر هدف شما این است که 10 برابر درآمد خود را در یک استارتاپ به دست آورید که ممکن است با 50 میلیون دلار خریداری شود، چگونه "در این نبرد" پیروز می شوید؟

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 دیگر 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, اینجا کلیک کنید "

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.

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سرمایه گذاری مبارک،

با احترام،

متیو میلنر
بنیان گذار
Crowdability.com