Reddit Closes $50 Million Round, Will Give 10% Back to Users

Reddit will give 10 percent of its latest investment round back to the community. The site hopes to do this by creating its own crypto-currency.

reddit

Reddit announced a $50 million funding round on Tuesday, led by Sam Altman, president of Y Combinator. Other notable investors include Peter Thiel, Jared Leto, Snoop Dogg and Reddit CEO Yishan Wong.

From the announcement:

We’re planning to use this money to hire more staff for product development, expand our community management team, build out better moderation and community tools, work more closely with third party developers to expand our mobile offerings (try our new AMA app), improve our self-serve ad product, build out redditgifts marketplace, pay for our growing technical infrastructure, and all the many other things it takes to support a huge and growing global internet community.

However, the most notable development with this round of funding is that the investors agreed to give 10 percent of their shares back to the community. Details on how exactly this would happen are sparse, but Wong offered this tentative plan:

We are thinking about creating a cryptocurrency and making it exchangeable (backed) by those shares of reddit, and then distributing the currency to the community. The investors have explicitly agreed to this in their investment terms.
 
Nothing like this has ever been done before. Basically we have to nail down how to do each step correctly (it is technically, legally, and financially complex), though in our brief consultation with an ex-SEC lawyer, he stated he could find nothing illegal about this plan. Nevertheless, there are something like 30 different things we have to pull off to make this work, so we’re going to try.
…
We want to emphasize that this plan is in its earliest stages right now and could totally fail (if it does, we will find another way to get the shares to the community somehow), but we are going to try it because… well, because we are reddit and we do these kinds of things.

Altman partook in an AMA today to answer questions about the latest investment. He did not give any additional details about the plan, except to insist that the gesture won’t be symbolic.
Here are some other highlights from his chat:

Eternally65
How are you going to get a return on Reddit? As I understand it, it has impressive penetration but few sources of revenue and is (I assume) cash negative despite its size.
 
samaltman
I’m willing to be very patient. I don’t have any particular timeframe in mind. I believe that the community is very valuable and that the value will continue to increase.
Up to the company if they want to share cashflow details, but they run the company efficiently 🙂

Eternally65
Another question: every once in a while, Reddit gets some very bad publicity (the Fappening leaps to mind). How would investors, particularly institutional investors, react to reddit being widely attacked and/or moving to censor some subreddits? (There are some truly vile subreddits, in my opinion.)
 
samaltman
PR comes and goes. I think the more important (and harder) question is how should reddit best protect what it stands for. Yishan is far more thoughtful and intelligent about this than I am, and I trust that he’ll get it right.
 
Free speech is both great and awful, but it’s difficult to figure out how to limit it without cutting off something potentially very important. There are hurtful things that are still important to allow to be said–someday, the ability to speak up will be really important. But, like almost anyone else, I hope that the community can find a way to push out more of the bad and highlight more of the good.
 
The shock subreddits are just a sideshow, I think. You can’t find them unless you look for them–the community generally works as designed, and most of the stuff that bubbles up is great.

Anusman_
Hi Sam–will the expansion to ‘community ownership’ be the beginning of an inevitable push towards an IPO? Do you plan to expand ownership of reddit without eventually going public? If so, how?
 
samaltman
Who knows. Maybe there will be a better option than an IPO. It’s up to the reddit team, not me, but I think they should do whatever is in the best long-term interest of the company.

wryknow
Why, in your opinion, is it important for sites heavily reliant on user generated content to be owned by users? Do you believe that more sites could benefit from this?
 
samaltman
1) People take care of what they own.
2) It just seems fair–users create the value, they should get to capture some of it.
3) I do think more sites could benefit from this, and honestly I’m somewhat surprised others haven’t tried it.

someguyfromcanada
Hi Sam. I am curious as to your motivation to give “the company” a proxy. Who will be exercising that vote and why did you decide that is something you thought best? And how/when is it revokable?
 
samaltman
It gets revoked in cases of fraud and similar situation.
 
I think that, most of the time, investors destroy their own value when they try to get creative and force a sale or whatever. I also wanted to be sure the community didn’t worry I was going to this.

shutupmrburns
We all know reddit is mostly non-profit, but investors such as yourself keep it afloat. You’re willing to be patient and wait until it’s ROI. How do you find the financial value in communities like reddit?
 
samaltman
Honestly, anyone who tells you they can do it precisely is lying. I made a few models but ended up using them only for very rough guidance.