Reddit IPO To Change Public Fundraising Model?
The big news today:
Reddit is preparing for a much-awaited IPO in March 2024, in which they will hold out an undisclosed number of shares for 75,000 long-time users (WSJ, subscription required).
It's the future of IPOs, IMO, and a brilliant way to reward the Reddit faithful who've kept the service growing through hard times and a ton of controversy.
By holding out shares for long-time and valued users, the team at Reddit is sending a new signal: investors and insiders aren't the only ones who deserve to get rich. Users do, too.
Power to the people?
It's typical in an IPO that investors, founders, company leaders, and early employees (after lockups end) stand to strike it big when the business they poured time and money into moves from private to public. Outside investors can also dive in and participate, though the average web user on Reddit likely lacks the volume of capital needed to get rich trading Reddit stock.
That's what makes this move so interesting. Rewarding users with equity just for being a long-time Redditor is novel and brilliant. It rewards use, reinforces long-term loyalty, and turns the pre-IPO buzz into new potential new user growth. It's a very savvy approach that more tech services, mainly ad-driven ones, will likely adopt in 2024 and beyond.
Eyeballs and upvotes, after all, have propelled the company to $810 million in ad revenue Reddit generated in 2023 from 850 million monthly active users. And it's the user-to-revenue ratio, assuming the linked figures are correct, that the leadership team at Reddit will likely aim to build on -- figuring out how to ramp up the revenue generated by those 850 million MAUs in the years to come. What's a better way to do it than encouraging loyalty while grabbing millions of new users post-IPO?
Equity CrowdFunding + IPO = The Future of Funding?
I'm not a financial wiz, nor am I a securities lawyer, but it does feel like the lines between equity crowdfunding and public offering are starting to merge.
At the core, each idea shares many similarities: offering a portion of the company via equity to individual investors. Of course, equity crowdfunding is governed by Regulation CF, which governs fundraising limits, disclosures, and the like. The amount raised is lower, and the volume of equity awarded is less, but the average investor can participate easily.
The IPO, on the other hand, is a rigid and expensive process. Companies file an S-1 with the SEC; they hire bankers to help with pricing, conduct extensive investor roadshows to drum up trading volume, etc. The result is typically a significant funding windfall for the company and a financial boon for investors.
It's the blending of the two ideas together that's interesting in the Reddit example. Why not do both and leverage as many fundraising methods as possible to generate cash for the company and wealth for public investors?
After all, you only get one IPO shot, so make it count. We'll see more of this idea in 2024 as the IPO market heats up and more companies look to make the most of it.