Haste Makes Waste

Reddit Offers Moderators Stock Ahead of IPO… But Why?

22 February 2024

Reddit plans to offer stock to a select group of users and moderators ahead of its upcoming IPO, according to an email obtained from a moderator of multiple subreddits.

At approximately 12:43PM today, a subset of Reddit users and moderators were contacted simultaneously via DM and email with an invite to pre-register for a Directed Share Program. It also included an as-of-yet incomplete set of terms and legal disclosures, blended with the occasional meme.1

The move closely follows an announcement that Reddit has licensed access to its API to Google, who will allegedly use Reddit’s user-generated content in order to train future AI models and products such as the recently released Gemini.

The full text of the email, which I’ve independently verified as authentic, is enclosed below (emphasis theirs). You can also view a screenshot of the original DM here.

Participating in Reddit’s Initial Public Offering (IPO)

tl;dr – you’re invited to a special program that lets redditors purchase stock at the same price as institutional investors when we IPO. Details about eligibility and next steps follow. This (long, dense) email has all the info we can provide due to legal restrictions.

As you may have heard, Reddit has taken steps toward becoming a publicly traded company with the initial public filing of our registration statement with the U.S. Securities and Exchange Commission on February 22, 2024. Yes, it’s happening.

And because you have helped make Reddit what it is today, you now have the opportunity to become Reddit owners at the same price as institutional investors.

We’re offering a Directed Share Program (“DSP”) that invites eligible users and moderators who have contributed to Reddit to participate in our initial public offering (“IPO”). (Including you!)

Program Requirements

While being selected to pre-register is the first step, there are certain legal and regulatory requirements to participate in the DSP that are outside of Reddit’s control. Bear with us here…

To be eligible for the DSP, you must:

* Be a current U.S. resident; You will be asked to provide the DSP Administrator a valid social security or permanent resident number, along with other personal information. Reddit will not have access to this data. Please note that U.S. residents using a VPN may face application limitations if the VPN locates them in certain non-U.S. jurisdictions.

* Be at least 18 years old;

* Provide your full legal name and an email address;

* Not be a current or former Reddit employee (FTE).

When the DSP launches (a few weeks after pre-registration ends), individuals who have been confirmed for the program will be contacted by our external DSP Administrator. You will then be asked to provide additional information securely to the DSP Administrator to confirm your eligibility.

How to pre-register

The number of people who can participate in the DSP is limited; we will offer this opportunity to as many redditors as we are able to accommodate. If capacity is reached before the deadline, you will be added to the waitlist. Based on demand, we may also limit the number of shares available.

If you are interested in being part of Reddit’s DSP, please go to https://reddit.com/dsp on desktop to complete the pre-registration form. If you are one of the confirmed participants, we will follow up with an email with more details in the coming weeks. You can also refer to the Frequently Asked Questions for more information. Due to regulatory restrictions (yeah… we know…) we are not able to respond to further inquiries or questions.

Pre-registering does not guarantee that you will be invited or able to participate in the DSP; it also does not obligate you to purchase shares.

As with any investment opportunity, you should make an individual decision based on your own personal circumstances and risk tolerance. Therefore, we urge you to review the preliminary prospectus, when available, before deciding whether to invest in Reddit.

The deadline for pre-registering for the DSP is March 5, 2024. If capacity is reached before the deadline, you will be added to the waitlist.

What happens next?

While there won’t be a confirmation email immediately after you pre-register, everyone who pre-registers will receive an email in the coming weeks from “noreply@redditmail.com”, telling them whether they can proceed with the next steps for the DSP.

This is an automated message (beep, boop, beep) and does not receive replies. Please refer to the FAQ for more information. Per our lawyercats, we are not able to respond to further inquiries or questions.

Prospectus and Important Disclosures

The offering will be made only by means of a prospectus. When available, a copy of the preliminary prospectus related to the offering may be obtained from:

Morgan Stanley & Co. LLC, Prospectus Department, 180 Varick Street, New York, New York 10014, or email: prospectus@morganstanley.com; Goldman Sachs & Co. LLC, Attention: Prospectus Department, 200 West Street, New York, New York 10282, telephone: 1-866-471-2526, facsimile: 212-902-9316, or email: prospectus-ny@ny.email.gs.com; J.P. Morgan Securities LLC, Attention:c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, New York 11717, telephone: 1-866-803-9204, or email: prospectus-eq_fi@jpmorgan.com; and BofA Securities, Inc., NC1-022-02-25, 201 North Tryon Street, Charlotte, North Carolina 28255-0001, Attention: Prospectus Department, telephone: 1-800-294-1322, or email: dg.prospectus_requests@bofa.com.

A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This notification shall not constitute an offer to sell or the solicitation of an offer to buy these securities, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

No offer to buy the securities can be accepted and no part of the purchase price can be received until the registration statement has become effective, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time prior to the notice of its acceptance given after the effective date. An indication of interest in response to this notification will involve no obligation or commitment of any kind.”

What is a Directed Share Program, Anyway?

Yeah don’t worry, this is over my head, too.

According to investment banks like Goldman Sachs or Robinhood, a Directed Share Program is used to distribute shares with a locked-in price to connections of a company that would normally not be participants in an IPO, like friends, family, or employees. The company gets to select those eligibility criteria themselves, though they’re subject to regulation.

It reminds me a bit of sharing your employer’s health insurance plan with your spouse; they’re not directly involved in organizing the IPO, but are at least close enough to the orbit of its shareholders that you might want to cut them in.

Is this metaphor a bit tortured? Absolutely. Are you still reading? For some reason! So I guess I did okay.

Why Is This Significant?

This is really unusual to do at this scale! Reddit users aren’t really any of those things, although you could make a strong argument that moderators ought to be considered employees in some capacity for all the work they do.

But companies never do anything out of the kindness of their heart. So, what might be incentivizing this announcement?2

There are three potential answers that I can think of; copyright law, finance, and PR. Or maybe it’s a fourth thing. I’m an idiot and I’m bad with money, what do I know?

First, there’s a conversation to be had about copyright. Recall that Reddit has just sold API access to Google. All of the content that this API provides access to, was generated for free by users over the last 20 years. They had no way of knowing that it could be used in this way.3

Even setting aside the portions of it which were reposted without the consent of the original authors, who actually owns data scraped from the internet is still an unsettled question in IP law, one which is being hotly litigated at this very moment. I expect it will continue to be for some time; there’s no way any corporation gives up on a potential honey pot this size.4

So depending on the terms of the share program, this might be a way for Reddit to position itself as having made a good faith attempt to compensate their most active users for their work.(Update: The FAQ includes information on their invitation schedule and user selection criteria!)

Since the final agreement has not been made available, and Reddit is adamant that it will not take further questions yet, it’s possible that it could include terms settling disputes or enforcing arbitration on this issue. It would be prudent for anyone considering this offer to have a lawyer review it carefully at that time, to make sure you understand what you might be giving up.

Meme Stonks

Matt Levine, author of the Bloomberg newsletter “Money Stuff”, offers another possibility in an opinion piece titled “Reddit’s IPO Is for Redditors”. It’s possible that they’re hoping for an influx of $420.69 pledges to prop up or at least supplement the price.

Levine writes:

“…Sometimes companies (1) need to raise money (because their business is in trouble) and (2) can’t do the traditional things that make investors happy (because their business is in trouble). Having some source of funding that is orthogonal to traditional business success seems like a good insurance policy: “If our business ever gets into trouble and we need money, we can always make some jokes with our retail investors and they’ll give us the money.

Not every company can get meme-stock investors. But you know who probably can? The whole idea of meme stocks originates with Reddit; Reddit’s boards are where the great meme stocks were created; Reddit is where the online communities of investors are. Surely Reddit has some advantages in appealing to retail investors on Reddit. It might as well get some of them in its stock early.”

And it’s true that the Gamestop / Bed Bath and Beyond meme stock craze of 2021 was primarily organized on Reddit.

Many individuals are still caught in what is essentially a cult to this day. If you’d like to learn more about why you absolutely should absolutely not join similar movements, the most comprehensive resource on the topic is this masterpiece by Folding Ideas, titled This is Financial Advice.

Maybe They’re Just Being Nice, Val

Finally, it’s also possible that this is genuinely just meant to generate good will and PR. Though, if that was the sole motivation I would expect them to have issued stock, rather than stock options.

I will say it would be nice to see the community that made Reddit capable of an IPO get a slice of that success, but I personally would not be satisfied given that all of their work was hoovered into an AI model first, and without negotiation. I wouldn’t exactly be grateful to Reddit even if this is the motivation.

It’d be sort of like ransacking someone’s picnic in the park, but leaving them a couple of bucks because that’s what you think the sandwiches were worth. The balance of power just isn’t equal.

In Any Case…

Recipients of Reddit’s offer are discouraged from asking additional questions at this time, and are directed to the FAQ instead. (Update: added a link to the DSP FAQ; thanks for the assist!)

All that is to say, that while they really do not want to be contacted for additional questions, I’m obviously going to do it anyway. There’s not a snowball’s chance in hell that they respond; but if they do, I will update this story.

  1. “Our lawyercats”… good grief. 

  2. If it isn’t clear, you’ve reached the opinion zone! Hi! 

  3. I’ll be honest with you; this was my first thought when I saw the email. I’ll cop to it being a snap assumption, and an uncharitable one at that. I probably wouldn’t have covered this story otherwise, because I really do not give a fuck about business news generally, but the potential copyright angle is interesting to me as a creator and something I intend to monitor. 

  4. “It’s piracy when you do it, but it’s innovation when we do it.”