Do today’s best startups need venture capital?
Also: Substack’s growth and Project Europe
Welcome to Cautious Optimism, a newsletter on tech, business, and power.
This morning, the government reported that wholesale inflation moderated in February and came in lower than anticipated. As with all lagging data points in today’s turbulent economic environment, the information is dated. Still, good news is good news! — Alex
📈 Trending Up: Finland … Meta using Fox News as its official mouthpiece … Zelensky’s popularity in Ukraine … ugly electronics … the FTC, maybe? … trade barriers … real estate in China … the Russian economy? … SK-US relations … Musk-Italian relations … corporate patronage … self-driving in China …
📉 Trending Down: Free trade, after the EU and Canada responded to new US tariffs on metal imports … free trade, after President Trump pledged new tariffs on EU goods after the EU put tariffs on US goods after the US put tariffs on EU goods … free trade, after Trump promised something about the balance of trade in April … Solo Brands … free speech in the United States … Tesla sales …
A ceasefire in Ukraine, after Russia rejected a 30-day cessation in violence.
US environmental protections, after the EPA started to gut protections impacting, variously, “wastewater regulations for coal power plants,” “Mercury and Air Toxics Standards,” and other delightful treats.
Project Europe
A group of European investors and European tech folks are putting together a small Euro-denominated fund and a bunch of mentorship to put capital and help into a new generation of startup founders. I think it’s a great idea.
Europe suffers from a brain drain when it comes to startup founders. To see it in action, hang out in the Bay Area, and ask the better-dressed folks where they come from. For the United States, it’s a great situation. What nation doesn’t want the best and brightest flocking to its shores to build massive companies?
For Europe, the situation is a bummer. What the continent needs is a way to keep its talent local, so that they build at home, create local wealth, and reinvest in the same economies that reared them. Anything to speed up Europe’s flywheel, in other words.
I remain an American down to the twists of my DNA, but I also want strong allies. If we are going to have a multipolar world, I’d like as many of the nexuses to be built atop liberal democracies as possible — not autocracies. So, a strong Europe suits me just fine.
The Project Europe effort rhymes with what Cherry Ventures said out loud when it closed a half-billion dollar fund earlier this year, namely that it is committed to helping build “the first trillion dollar company in Europe.” That’s a big fucking goal. And a good one. But to do so, you’ll need a wave of founders building at home. Perhaps Project Europe will help.
I’m interviewing Harry Stebbings of 20VC fame and founder of Project Europe tomorrow. Hit reply to this email if you have a question you want me to ask.
Substack is going to make it
When Substack’s fundraising efforts hit a wall back in 2022, the company’s future was uncertain. Venture-backed startups that suddenly cannot raise new capital sometimes fold. Substack, however, did not. After a public crowdfunding event and layoffs, the company has managed to not only survive, but continue growing.
Substack also raised a $10 million round in late 2024 from “strategic investors,” it’s worth noting.
This week Substack announced that it had crested the five million subscription milestone. Notably, it took less time to add one million more paid subscriptions than in the past:
July 2018: 11,000
Feb 2021: 500,000
Nov 2021: 1 million
Feb 2023: 2 million
Feb 2024: 3 million
Nov 2024: 4 million
March 2025: 5 million
Is that a venture-style growth curve? Perhaps not, at least by traditional standards. And AI-first startups today are growing far faster — but it’s still impressive. Media is a goddamn grind even if you love it as I do, and successful venture-backed media and media-ish companies are thin on the historical turf.
CO is still on Substack, despite deciding in an earlier iteration that it would seek new shores after the Nazi brouhaha on the ‘Stack. We’ve considered, variously, Beehiiv, WordPress, Ghost, and other options. At some point, we still intend to move. But Subtack does simple newsletter creation and blogging pretty well. Ease of use versus friction of moving is a real test of conviction, it turns out.
For fun, presuming that each subscription to Substack is worth, say, $8, at 5 million paid subscriptions that company is generating around $40 million worth of GMV monthly. With its 10% cut, Substack is doing perhaps around $4 million worth of monthly revenue. That’s just under $50 million per year. At that scale, I presume Substack can exist forever.
At an average of $6 per subscription, the numbers bump down to $30 million worth of GMV and $3 million per month for Substack proper; at $10 per subscription per month, well, you can run the math.
I have no idea how you get Substack back to its ZIRP-era $650 million valuation, but survival? Yeah, Substack is going to make it. Good.
Do today’s best startups need venture capital?
The other day on TWiST, Jason and I hosted Roy Lee of Columbia and Amazon-interviewing fame. He built a tool that made it possible to use AI tools during remote technical interviews with tech companies. It worked so well he got some offers, which he turned into a viral stunt by rejecting them and talking to the press.
In terms of academia-corporate relations, Lee is a catastrophe for Columbia. Amazon tattled on Lee after he shared a video of him using his little tool during an interview with the ecommerce giant, leading to Columbia making a stink about punishing him. What’s hilarious is that Lee doesn’t intend to finish his time at the university and instead has already scaled the product he built off his little hack to a $1 million run rate.
I bring all this up because Lee is the sort of person that venture investors want to back. Why? He’s clearly technically able to build something interesting, create buzz around it, and monetize his efforts. That’s a lethal combination in the startup game. The fact that he’s razzing incumbents while doing so? A cherry atop the cake.
But when my co-host brought up the idea of putting some of his capital into whatever it Lee decides to eventually build, the college-age maverick politely declined. Why? Because his little company is already airdropping revenue all over his head. Why raise equity funding when you can simply open up a spigot and let income funnel in?
Lee is a microcosm of what’s going on in the market today. The best startups today are:
Growing faster than ever: Lovable, Cursor, Mercor, ElevenLabs and others are posting insane growth curves. It’s bonkers.
Able to do more with fewer humans: Small teams are in, big teams are out.
Not wedded to conventional sales methods: Given that AI tools often offer workers a personal productivity upgrade, they sell themselves to both users and companies alike.
The result of the above is more valuable, less expensive startups. That’s a great model to build founder and early employee wealth, but does seem to tilt the balance away from venture capital as a ~requirement for scale.
I’m at least partially full of shit here, to be clear. Lovable raised $15 million. Cursor has raised a lot of capital tool, as has ElevenLabs. So, no, some of the best-known startups today are still tapping venture coffers. But I’ll bet you a nickel that, compared to the SaaS era, venture dollars invested per dollar of ARR is going down. And the further down it goes, the less startups will need external capital. The best, most enticing startups, at least.