Reddit Is Letting Power Users In on Its IPO. Not Everyone’s Buying

Reddit didn’t immediately respond to a request for comment for this story.

Unwanted Offer

Reddit’s investment offer to users is known as the Directed Share Program. “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,” the company wrote to the first batch of invitees, both in emails and direct messages through Reddit.

The program allows users to buy shares the day before shares in the company begin trading, at a price to be set by Reddit’s bankers. If the start of public trading attracts a frenzy of interest, shares bought on the eve of trading can immediately rocket in value. Users won’t face any restrictions on selling the shares.

Such IPO buy-ins are typically reserved mostly for huge investors, such as retirement funds and ETF issuers, that tend to hold shares for a long time. Involving individual investors in an IPO can lead to unpredictable swings in pricing, since individuals may sell their shares sooner.

Companies such as Facebook and Robinhood suffered share price shocks after giving individuals an unusually high number of shares—about a quarter to a third of those in the IPO. Airbnb, which set aside about 7 percent of its IPO shares for hosts on the housing rentals marketplace, faced fewer issues.

Reddit hasn’t announced how many shares it will allocate users, but it will be a limited number. First dibs go to significant contributors as measured by joining company advisory boards or having high karma, a secretly determined grade of someone’s behavior on Reddit. The first tier also includes some of the busiest moderators, who create discussion forums and enforce the rules for contributing to them.

Additional waves of users with successively lower levels of contributions will be invited in the coming days. Everyone has until March 5 to register their interest in buying shares, but nobody is obligated to follow through with a purchase. Starting March 1, any user can try to sign up regardless of activity or moderating history, though some may end up on a waitlist.

To be eligible for the program, users must be at least 18 years old and must reside in the U.S. These restrictions left some teenaged mods, and those located in several other countries, feeling miffed. “Redditors based outside of the US are an equally important part of making Reddit what it is today,” the company wrote in FAQs on its website, citing unspecified regulations for the geographic limitation. “Unfortunately, this one is out of our hands.”

Cook, the gaming mod, who is based in the UK, says international availability of the shares wouldn’t have convinced him to buy in—but adds that Reddit’s inability to find a workaround or strive for fairness “doesn’t instill confidence.”

Former Reddit employees who had been involved in IPO preparations say resentment from overseas moderators had long been identified as a pitfall of the plan. Staff also told executives they think many moderators would fear buying in, worrying it would taint their volunteer work or invite the wrath of their community members for appearing to sell out. But Cook framed it differently: he said stock simply isn’t the payoff volunteers are after. “A moderator’s ‘reward’ is making the community they’re in better for everyone,” he says.