Y Combinator president upvotes Reddit with $50M investment

Community news-sharing site Reddit has raised a new $50 million round of funding, the company told VentureBeat today.

The news ends months of rumors and speculation about the site’s investment activity and reveals more details on what that funding means for the site. Reddit is one of the largest and most active news-sharing sites, with over 5 billion page views and nearly 115 million unique visitors per month. Its community is known for polarizing around important political issues, smaller acts of kindness, and most importantly keeping lots of people informed and connected about topics they’re interested in. But the site’s biggest issue has been one of monetization, specifically the lack thereof. The problem is that Reddit’s powerful user community typically rejects traditional methods that a company of its size would use to bring in money, such as ad networks, sponsored content, and the like.

The new round of funding was led by Y Combinator president Sam Altman, with participation from from Alfred Lin of Sequoia Capital and Marc Andreessen of Andreessen Horowitz. Having Altman lead the round is significant because in a way it sort of ties back to Reddit’s beginnings, as the company first launched out of Y Combinator’s accelerator program back in 2004. Others who participated in the round include a handful of tech industry entrepreneurs including Peter Thiel, Ron Conway, Paul Buchheit, Jessica Livingston, Kevin and Julia Hartz, Mariam Naficy, Josh Kushner, and even Reddit CEO Yishan Wong.

Time will tell if that same community feels the same now that Reddit has money to spend. Wong, however, had a very pointed response to what the new investment actually means for Reddit.

“An investment like this doesn’t mean we’re rich or successful,” Wong wrote in a blog post about the announcement. “A couple days after we closed the financing, Sam came to our office and handed me a genuine 100 trillion dollar Zimbabwean note, as a reminder to us of the difference between money and value. Money can become worthless very quickly, value is something that is built over time through hard work.”

And true to form, Reddit spent at least half of its life operating on a very meager budget. Before Advance Publications, Reddit’s parent company, decided to spin off the site from Conde Nast, Reddit went through a period where it only had a handful of employees that worked out of the offices of tech news mag Wired. But even after Reddit became its own entity, the site experienced lots of growing pains. While the team managed to keep the site from going down, it didn’t have the resources to roll out new features or updates the community was asking for. It also wasn’t able to put together an advertising sales strategy strong enough to allow Reddit to sustain itself in the long term, as Wong points out in his post.

Yet one of the biggest examples of Reddit needing additional resources can be seen with its community moderation. The site is huge and has a very active base of users, which makes it difficult to police when people break Reddit’s minimal rules.

The most recent example was the decision to shut down the subreddit (sort of like a category of news/discussion) “The Fappening,” which was instrumental in spreading leaked nude photos from hacked celebrities phones. Some harsher critics said Reddit only spoke up about “The Fappening” publicly because of how close the company was to announcing its new round of funding.

But with the new capital, it sounds like Reddit will be able to address some of those moderation issues. While Wong indicates that Reddit will use the money to expand its development on projects and new features, it’ll also use some to “expand our community management team” and “build out better moderation and community tools.”

Reddit also plans on spending some of that money to improve its self-serve advertising platform, the Reddit Marketplace, and development on third-party mobile apps.

While details are scarce, Wong also revealed that the new funding round came with a stipulation that all investors give 10 percent of their stake to the community. What we don’t know is what that might actually look like in practice. (Will individuals be able to buy a piece of Reddit? Or will the community collectively own a chunk? And of course, what does that communal stake in Reddit mean?) The plan was hatched by YC’s Altman, who is planning to do an AMA on Reddit soon.

“First, it’s always bothered me that users create so much of the value of sites like [R]eddit but don’t own any of it.  So, the Series B Investors are giving 10% of our shares in this round to the people in the [R]eddit community, and I hope we increase community ownership over time,” Altman said in a blog post about the Reddit community investment plan. “We have some creative thoughts about the mechanics of this, but it’ll take us awhile to sort through all the issues.

“If it works as we hope, it’s going to be really cool and hopefully a new way to think about community ownership,” he added.

Check out VentureBeat’s interview with Reddit CEO Yishan Wong for more details about what the $50 million investment means (and doesn’t mean) for Reddit and its active community of users.