Few Websites have a larger--and more loyal--following than Reddit. Now its members have even more reason to love it.
On Tuesday, Reddit chief executive Yishan Wong took to his blog to announce a $50 million round of financing led by Sam Altman of Y Combinator and an unusual investment plan, as first reported by Mashable.
Wong said he planned to make 10 percent of the deal's shares available to the members who have helped create Reddit. In another spin, Wong said Reddit was considering creating a cryptocurrency to allow trading to happen.
There are a lot of moving parts in those two announcements to unravel. But essentially, it's a smart strategy that's equal parts marketing and business building.
"One of Sam's big concerns has been how to democratize and spread the wealth of so many valuable and value-creating enterprises," says Patrick Chung, a partner at Menlo Park, California-based venture capital firm New Enterprise Associates. Chung says he has known Altman for over a decade, having served as Loopt's first investor. (Altman started Loopt, a social networking stie, in 2005.)
And when it comes to Reddit, the news and entertainment social sharing network created by Alexis Ohanian and Steve Huffman, the members have helped create the site. Here's what Wong had to say about that:
We've long been trying to find a way for the community to own some of reddit, because it is your contributions that help to anchor the site and give it strength. We've actually discussed possible ways to do this for years--Alex, Eric, I, and our backers at Advance (parent company of Conde Nast) have tried to come up with creative ways to do it, but they never worked out or ran into legal obstacles.
We think we've come up with a way. Led by Sam, the investors in this round have proposed to give 10 percent of their shares back to the community, in recognition of the central role the community plays in Reddit's ongoing success.
As companies stay private longer, there's been considerable interest in investing earlier, and sites such as SecondMarket and Equidate allow some investors, typically wealthier ones, to do that. Twitter and Facebook are just two examples of hot tech companies that sold shares through SecondMarket.
But a direct sale to Reddit members, particularly using a cryptocurrency, is definitely a new spin. A cryptocurrency, Chung says, could ease some of the difficulties inherent in building a trading platform.
"It is really difficult to start to allocate what the value of these shares of Reddit could be measured in," Chung says. "And you need a frictionless transaction platform to make this happen."
While Wong acknowledged that many details would have to be nailed down in creating a cryptocurrency, the impact of selling shares to members will be immediate, and likely drive stronger user engagement on Reddit, Chung says.
And that's something everyone can happily trade on.