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Why Andreessen Horowitz Is Investing in a Newsletter Publishing Platform: Term Sheet

July 16, 2019, 1:52 PM UTC
Courtesy of Substack

Venture capitalists have an appetite for the world’s oldest social media network: email.
Newsletter publishing platform Substack raised $15.3 million in Series A funding. Andreessen Horowitz led the round, and was joined by investors including Y Combinator. The company was founded by Hamish McKenzie, who has previously worked at PandoDaily and Tesla, alongside Chris Best and Jairaj Sethi, who both worked at Kik.
Here’s how Substack works: Writers can launch a free or a paid subscription newsletter on the Substack platform with no upfront fees. Substack makes money by taking a 10% cut of subscription revenue. There are 50,000 paying subscribers across the entire Substack network. (Disclosure: Substack hosts my personal newsletter The Profile.)
Bill Bishop, who was the first person to launch a newsletter on Substack, charges readers $15 per month for access to his newsletter, Sinocism. It offers daily commentary and curated links about news events in China.
“It was so successful that on his first day with Substack, he got to six figures of revenue,” said McKenzie. “At that point, we thought we have to try to make this possible for other writers.”
When Substack first launched, the co-founders were proactively reaching out to individual writers with large, loyal followings in attempts to convince them to join the nascent platform. One of the people they were hoping to recruit was Andrew Chen, a prolific writer on all things Silicon Valley. Chen didn’t join Substack at the time, but he soon became a general partner at Andreessen Horowitz and took another look.
“When Hamish first told me about it, it was just an idea,” Chen said. “But when they later told me about how fast it’s growing and how writers are already making a nice living through the platform, I thought, ‘Huh. If this is already working now, just how big could it get?’’
Pretty big, he decided. This time, it was Chen initiating the conversation. The entire deal — from conversation to signed term sheet — was done in one week. The company plans to use the funding to hire developers and writer relations specialists. “Oh, and we might actually move into a real office,” Best said.
Chen has big dreams about what the company could become — a one-stop shop for content creators that allows them to make real money from day one. “Substack could provide the tooling, the audience, the monetization hooks, the promotion, and maybe even give you ideas for things to write about,” he said.
But that’s not the reality today. Right now, Substack is a newsletter publishing tool that works best for individuals who already have a built up audience — a percentage of which is willing to shell out $10 to $30 per month for a newsletter. In a thread titled, “What would you love to see in Substack?,” Substack writers outline all of their wishes for product improvements. They include everything from the trivial — photo captions — to the more complex — the development of multiple pricing tiers for reader subscriptions.
“There were like 300 comments in a few hours,” Best said, referring to the thread. “And the three of us were sitting there like, ‘Aha, OK.’ There’s a lot of little things that people want, the the funding will allow us to go faster in building them.”

Read on

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Margo Georgiadis, president and CEO of Ancestry, said her company does not cooperate with law enforcement unless compelled by a court order. In 2018, she says, the company had 10 requests from law enforcement. But those inquiries were related to credit card fraud, not genetics. 

“There’s no question that in the industry as a whole, other actors have chosen to go down a different path and not meet the highest standards,” Georgiadis said Monday at Fortune’s Brainstorm Tech conference in Aspen, Colo. “Consumers need to understand they do have a choice, and that there are real differences between companies.” Read more.

Check out the latest from Fortune Brainstorm Tech here.


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- Near, a New York and San Francisco-based platform that leverages AI to make real-world data actionable, raised $100 million in funding, from Greater Pacific Capital. 

- Patreon, a San Francisco-based platform for enabling content creators and artists to be able to fund their work, raised $60 million in Series D funding. Glade Brook Capital led the round, and was joined by investors including Thrive Capital, Initialized, Index Ventures, DFJ, Freestyle Capital, Charles River Ventures, and Otherwise.

- Moglix, an India-based B2B commerce company, raised $60 million in Series D funding. Tiger Global, Sequoia India and Composite Capital led the round.

- Curve, a London-based banking platform that consolidates multiple cards and accounts into one card, raised $55 million in Series B funding at a $250 million valuation. Gauss Ventures led the round, and was joined by investors including Creditease, Cathay Innovation, IDC Ventures and Outward VC.

- BriteCore, a Springfield, Mo.-based provider of software solutions for insurers, raised $47.5 million in funding. Warburg Pincus led the round, and was joined by investors including Radian Capital and WCF Mutual Insurance Company.

- Flybits, Inc, a Canada-based company that enables enterprises to leverage data intelligence, raised $35 million in Series C funding. Mastercard and Point72 Ventures co-led the round, and was joined by investors including Citi Ventures, Reinventure Group, Portag3 Ventures, TD Bank and Information Venture Partners.

- Jane Technologies, Inc., a Santa Cruz, Calif.-based retail software company that created an online cannabis marketplace, raised $21 million in Series B funding. Investors include Arcadian, Queens Court Venture Partners, and Tran Ventures.

- Finix, a San Francisco-based payments infrastructure platform, raised $17.5 million in Series A funding. Bain Capital Ventures led the round, and was joined by investors including Insight Venture Partners, Aspect Ventures, Visa, Homebrew, Precursor Ventures and Act One Ventures. 

- Capital Rx, a New York-based health tech company, raised $12 million in funding. Edison Partners led the round.

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- Bulletin, a New York-based retail technology company, raised $7 million in Series A funding. Foundation Capital led the round, and was joined by investors including Kleiner Perkins, Trail Mix Ventures and Afore Capital.

- Xolo, an Estonia-based online platform for launching and running one-person businesses, raised $6.8 million in Series A funding. Karma Ventures, Vendep Capital and Leap Ventures led the round.

- Glints, a Singapore-based operator of a recruitment and career development program, raised $6.8 million in Series B funding. Monk’s Hill Ventures led the round, and was joined by investors including MindWorks Ventures, Fresco Capital and Wavemaker Partners.

- WAVE, an at-home meditation product and content subscription, raised $5.65 million in seed funding. Investors include CrossLink Capital, Lerer Hippeau, Collaborative Fund and Ludlow Ventures.

- Umbrella, a New York-based startup aiming to help homeowners in their later years connect with others in their neighborhood through a membership-based marketplace, raised $5 million in seed funding. Thrive Capital led the round, and was joined by investors including Inspired Capital. 

- Space in Africa, a Nigeria-based provider of daily news and data analysis related to the African space industry, raised seed funding of an undisclosed amount. AC Ventures led the round.


- Orchestra BioMed Inc, a New Hope, Penn.-based biomedical innovation company, raised $34 million in funding. Perceptive Advisors, RTW Investments and Soleus Capital led the round.

- Trefoil Therapeutics, a San Diego, Calif.-based developer of protein-based therapeutics, raised $28 million in Series A funding. Investors include Bios Partners, Access Biotechnology, Hatteras Venture Partners, Aju IB Investment, Correlation Ventures, ExSight Ventures and InFocus Capital Partners

- Cradle Genomics, a company developing a novel prenatal testing methodology, raised $17.1 million in Series A funding. Illumina Ventures and Section 32 led the round, and was joined by investors including Alexandria Real Estate Equities, Sea Lane Ventures, Listwin Ventures, and Axon Ventures.

- POPS! Diabetes Care, a Stillwater, Minn.-based diabetes care management company, raised $6 million in Series A funding. 30Ventures led the round, and was joined by investors including Revolution’s Rise of the Rest Seed Fund and Flying Point Industries.

- Optellum, a U.K.-based developer of an imaging biomarker for lung cancer detection, raised 1 million pounds ($1.3 million) in funding, from Luminous Ventures.


- RedBird Capital Partners and Reverence Capital Partners agreed to acquire Vida Capital Inc, an Austin, Texas-based alternative asset management platform. Financial terms weren't disclosed. 

- Ezlo Innovation, which is backed by MAVeCap, acquired Centralite Systems, an Alabama-based maker of smart home devices. Financial terms weren't disclosed.

- Novacap will acquire a majority stake in Spectrum Health Care, a Toronto-based provider of home health care services. Financial terms weren't disclosed. 

- Healthcare Financial Resources, which is backed by Housatonic Partners, acquired PARA HealthCare Financial Services, an Anaheim, Calif.-based provider of market-based pricing tools, analytics products, and consulting services for healthcare organizations. Financial terms weren't disclosed. 

- Equistone Partners Europe Limited agreed to acquire Moody’s Analytics Knowledge Services, a provider of bespoke research, analytics and automation technology to the financial services sector, from Moody’s Corporation (NYSE: MCO).


- Livongo Health, a Mountain View, Calif.-based healthcare platform for chronic illness management, plans to raise $230 million in an IPO of 10.7 million shares priced at a point between $20 to $23. It posted revenue of $68.4 million in 2018 and loss of $33.5 million. General Catalyst, Kinnevik Online, and KPCB Holdings back the firm. Morgan Stanley, Goldman Sachs and J.P. Morgan are underwriters. It plans to list on the Nasdaq under the symbol “LVGO.” Read more.

- Castle Biosciences, a Texas-based seller of skin cancer genetic tests, plans to raise $50 million in an offering 3.3 million priced at a point between $14 to $16 (Insider plan to purchase 30%). The firm posted revenue of $22.8 million and loss of $10.2 million in the year ending 2018. Sofinnova HealthQuest Partners (16.3% pre-offering), MCG Partners (12.9%), and Industry Healthcare (11.5%) back the firm. It plans to list on the Nasdaq as “CSTL.” Read more.


- Blackstone agreed to acquire Vungle, a  San Francisco-based performance marketing platform for in-app video advertisements on mobile devices, for approximately $750 million. Vungle had raised approximately $25.5 million in funding from investors including Crosslink Capital, GV, Thomvest Ventures, Uncork Capital, 500 Startups, Seven Peaks Ventures, and AOL Ventures.

Arcline Investment Management acquired Integrated Polymer Solutions, Inc, a company focused on designing and engineering elastomeric components and tools for aerospace, military, biopharma and specialty industrial markets, from Industrial Growth Partners. Financial terms weren't disclosed. 


- RA Capital Management, a Boston-based investment firm, raised $308 million for a venture capital fund to target life sciences investing, according to a filing with the SEC

- Mangrove Equity Partners, a Tampa, Fla.-based private equity firm, raised $175 million for its third fund, according to an SEC filing


- Bessemer Venture Partners promoted Andrew Hedin to principal, and Mike Droesch to vice president.

- Elizabeth Qian joined  TA Associates as a vice president.