Reddit’s long, rocky road to an IPO
During a leadership crisis in 2015, Reddit asked Steve Huffman, one of its founders, to return to run the social media platform.
Mr. Huffman, who worked on a travel site, was not eager to return. Reddit was a headache. It was experiencing one revolving door of top executives. The vast community of users was belligerent towards management. Reddit’s ownership was also complicated and its technology lagged behind the competition.
“I came across the burning building,” Mr. Huffman said in a 2017 post podcast in which he describes his return.
This month, Reddit is poised to hit the stock market in one of the first tech IPOs of the year. His move stands out. Unlike a recent crop of startups focused squarely on artificial intelligence, the 19-year-old company is a throwback to an earlier era of social media. It is also trying to go public at a time when investors are skeptical of its technology offerings.
But what’s most striking is that Reddit can be made public at all.
After getting into social media early on, the San Francisco-based company stagnated for years. The country faced questions and controversies due to its liberal attitude towards freedom of expression. It struggled to build a viable business, and initially succeeded resistant to advertising – until that wasn’t the case anymore.
After Mr. Huffman returned, the company’s revenues rose from $12 million to more than $800 million a year, and the number of employees from 80 to 2,000. But Mr. Huffman continued to encounter obstacles. When he raised fees for independent developers using Reddit’s data last June, many moderators on the site revolted by shutting down parts of the platform. And questions have been raised about the company’s role in spreading disinformation.
“Reddit has managed to survive, almost in spite of itself,” said Ellen Pao, a former CEO of Reddit who runs Project Include, a Silicon Valley nonprofit focused on diversity.
When Reddit began a roadshow this week to appeal to potential investors, the hurdles it faced were clear. The company said it aimed to raise up to $748 million in its offering, which sold about 22 million shares for $31 to $34 each, according to a filing. That would bring its valuation to about $6.4 billion, below the $10 billion it raised in a private funding round in 2021.
Skepticism about the IPO was seen in a well-known Reddit community called WallStreetBets forum where people discuss stocks and trading, and that has contributed to the rise of ‘meme stocks’. Some commentators said that Reddit had not proven that it could monetize its users or its data.
“HOW CAN I CUT THIS DUMPSTER FIRE STOCK!” one WallStreetBets user wrote last month. (Reddit quoted the forum as a risk factor in its regulatory filings, warning that this could cause “extreme volatility” in the company’s stock price.)
Others said the public markets were hungry for tech offerings like Reddit. “It feels like there is enough demand for a great IPO story,” said Barrett Daniels, co-leader of USIPO Services at Deloitte. “The reluctance here is to be a guinea pig.”
Reddit declined to make executives available for an interview, citing the quiet period before an IPO
Mr. Huffman and Alexis Ohanian founded Reddit in 2005 from a dorm room at the University of Virginia. They wanted to create a start-up that would allow people to pre-order food via a mobile phone, called My Mobile Menu or MMM.
They pitched the idea to Paul Graham and Jessica Livingston, who were setting up Y Combinator, an incubator for startups. Mr. Graham and Ms. Livingston turned down the food ordering proposal, but helped the founders envision what would become Reddit: a social message board where links could be shared.
Reddit is reminiscent of old-fashioned online message boards and forums. With more than 73 million daily users, it consists largely of text-based forums, divided into different topics of interest, called ‘subreddits’. These communities discuss all kinds of things celebrity gossip Unpleasant cosmetic advice Unpleasant Bernese Mountain Dogs. Thousands of volunteer moderators oversee the subreddits.
“Reddit is one of those rare places on the internet where you can find niche interests and broad interests all in the same place,” said Alfred Lin, a partner at Sequoia Capital, a venture capital firm that has invested in the company.
In 2006, Condé Nast bought Reddit for $10 million, turning Mr. Huffman and Mr. Ohanian into young millionaires overnight. Both founders eventually left, leaving Reddit in the hands of a small team of hardcore “Redditors” who were fiercely protective of the site.
That team was adamantly opposed to evolving how Reddit looked and worked, for fear it would alienate its core users. They resisted building a mobile application well into the rise of the iPhone era, were largely disinterested, and didn’t have the bandwidth to turn Reddit into a profitable business.
Employees also had a laissez-faire attitude toward moderating statements on the site, which sometimes landed the company in hot water. Some subreddits were toxic and devoted to racist themes or non-consensual nudes, the kind of content advertisers found abhorrent. Many employees were against data collection and more invasive forms of advertising.
“The community continued to grow, but there was just no product innovation,” Mr. Lin said. “It stagnated a bit.”
In 2011, Condé Nast’s parent company, Advance Publications, made Reddit an independent entity after recognizing that the site needed “start-up energy,” Mr. Lin said.
Yishan Wong, a former Facebook and PayPal engineer, joined Reddit as CEO in 2012 to boost the site. He later brought in Ms. Pao, a former venture capitalist, to work on business development and partnerships.
Mr. Wong helped jump-start Reddit’s development of mobile applications for the iPhone. Because Reddit had been without an official mobile app for so long, independent developers had created their own versions of a Reddit app that users could download for a fee.
When Mr. Wong left Reddit in 2014, Ms. Pao stepped in as interim director. She began changing some of the site’s free speech policies and invested resources into building up the advertising business, which angered many of Reddit’s users. she believed had exceeded.
They criticized Ms Pao, who resigned in 2015. Sam Altman, the CEO of OpenAI and then a member of Reddit’s board of directors, said at the time that the attacks on Ms. Pao were “worse for Ellen because she is a woman. .” Other employees said she was a scapegoat for general user anxiety.
Reddit asked Mr. Huffman to return. “It was one of the hardest decisions he ever had to make to come back,” said Ms. Livingston, whose company was Reddit’s first investor.
Once back at the company, Mr. Huffman continued to implement policy changes on speech, including banning users and subreddits dedicated to hate speech. He brought in new executives such as Jen Wong, the Chief Operating Officer, and Drew Vollero, the company’s first Chief Financial Officer.
Under Mr. Huffman, Reddit expanded its advertising business. The company has also leveraged its wealth of user data and struck deals with companies like Google that want to use the data to train their large language models, a type of artificial intelligence that underpins chatbots, to better understand and replicate human speech . Reddit expects more than $200 million in licensing fees from these deals in the coming years.
Reddit has also tried to bring its site out of the Stone Age by updating its design. It is experimenting with updated features that highlight photos and videos and has improved its algorithms to suggest different posts based on users’ interests.
Not everything has gone smoothly, including a moderator revolt last year. Mr. Huffman said in an interview at the time that there was general concern about Reddit’s changes as part of a natural “maturation process.”
Many current and former employees are relieved that, after nearly two decades of drama as a private company, Reddit is now days away from ringing the opening bell on the New York Stock Exchange. In a private Slack group founded by former employees, activity is spiking in anticipation of finally being able to sell their company shares, said two former employees who are part of the group.
Ms. Pao said she was “excited that the employees who have worked very, very hard for years can finally get some benefit.”
Some former employees also traded photos of a “challenge coin‘ created in honor of their time at Reddit. The date of the company’s founding was stamped on the coin mascot (a smiling alien face based on a drawing Mr. Ohanian signed in college), according to a photo shared with The New York Times. The coin also included a short message, using the site’s language for when users have read a link: “Been There, Already Reddit.”