Reddit announced on Monday that it had raised $300 million in funding. Not that it needed all that capital.
In a conversation Monday in San Francisco, I reminded Steve Huffman, Reddit's chief executive and co-founder, that just two months ago he'd told me point blank he wasn't seeking additional funding for the social site.
"That's true," he said--the company was in the unusual position of not needing additional funding. Nevertheless, it decided to pull together the massive Series D round, and did so exceedingly quickly. Led by Chinese tech giant Tencent Holdings (which contributed $150 million) and joined by a group of Reddit's previous investors, the capital infusion left Reddit with a $3 billion valuation.
"This was one of the easiest rounds we've ever put together," Huffman said. "In my 12 years in San Francisco, I have pitched and been rejected by every investor in the Bay, most of them twice."
Reddit announced its previous round, totaling $200 million, back in July 2017. It had taken a tremendous amount of effort and nearly a year for Huffman and the company to assemble. (At one point in reporting on my book on Reddit, We Are the Nerds: The Birth and Tumultuous Life of Reddit, Huffman told me the fundraising was proving to be so difficult he almost gave up.) But once completed, the round valued Reddit at $1.8 billion, giving the company its first unicorn designation and significant room for growth as it expanded its offices in San Francisco, Los Angeles, Chicago, and New York.
Since then, Reddit--known as "the front page of the internet"--has nearly doubled in head count, to just under 500 employees. It has redesigned its website, and bolstered its ability to sell advertising to apparel, automotive, and media companies. Reddit is for the first time generating significant revenue, estimated at $85 million to $100 million annually. It's the sixth-most trafficked website in the U.S., and the only major social site that's privately held.
Those factors explain why investors were so eager this time around, and why Huffman was able to secure conditions he deemed favorable enough to proceed. He explained that he's been approached by multiple investors recently, and usually tells them the same thing: "We don't really want to raise." But he has a caveat: "If you will not drag us through a ton of diligence and can move quickly and no weird terms, we'd be happy to hear you out."
Huffman said Reddit wasn't seeking the funding to fuel growth, and that it wasn't looking to vastly accelerate hiring--it has nearly outgrown its San Francisco headquarters after less than two years. But he may have some plans for it: He told CNBC he plans to expand the company internationally and continue broadening its advertising platform to take a bite out of the online ad ecosystem dominated by Google and Facebook.
Lead investor sparks online outcry
The speed in closing the round may be attributable to Tencent's involvement: As U.S. trade negotiators arrive in Beijing this week, there has been speculation that the Trump administration could soon limit Chinese firms' ability to invest in American companies.
Early word of Tencent's likely investment in Reddit hit the internet late last week. Many Redditors immediately voiced their opposition to allowing Tencent--which censors content on the social and messaging platforms it operates in China because of government regulations--to fund the growth of Reddit, which has earned a reputation as a haven for open discourse. (Access to Reddit also is blocked in China.)
Users posted, upvoted, and commented on images that have been banned in China, including the character Winnie the Pooh, whom bloggers had compared to President Xi Jinping. One Pooh image rocketed up the Reddit homepage Monday, gaining popularity because of its caption: "Since Reddit took a $150 million investment from Chinese censorship company Tencent, please welcome our leader President Xi."
Tencent is not Reddit's first foreign investor; among Reddit's more than 20 investors is United Arab Emirates-based Vy Capital. Until now, Advance Publications, which owns publisher Condé Nast, has been Reddit's majority shareholder. A Reddit spokesperson declined to comment on investment shares, or whether Advance had lost its majority owner status with the new funding round.