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Reddit’s Long, Rocky Road to an Initial Public Offering

TechReddit’s Long, Rocky Road to an Initial Public Offering

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 was working on a travel site, was not eager to come back. Reddit was a headache. It was experiencing a revolving door of chief executives. Its sprawling community of users was combative with management. Reddit’s ownership was also complicated, and its technology was lagging behind competitors.

“I ran into the burning building,” Mr. Huffman said in a 2017 podcast describing his return.

This month, Reddit is poised to reach the stock market in one of the first tech initial public offerings of the year. Its move stands out. Unlike a recent crop of start-ups that are focused entirely 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 have been skeptical of tech offerings.

But what stands out the most is that Reddit is able to go public at all.

After being early to social media, the San Francisco-based company stagnated for years. It faced questions and controversies for its freewheeling stance toward free speech. It struggled to build a viable business, and was initially resistant to advertising — until it wasn’t.

After Mr. Huffman returned, the company’s revenues climbed to more than $800 million a year from $12 million, and its employees to 2,000 from 80. But Mr. Huffman continued encountering obstacles. Last June, when he increased fees for independent developers who used Reddit’s data, many moderators on the site revolted by shutting down sections of the platform. And questions have swirled about the company’s role in spreading misinformation.

“Reddit managed to survive, almost in spite of itself,” said Ellen Pao, a former chief executive of Reddit who runs Project Include, a nonprofit organization in Silicon Valley focused on diversity.

This week, as Reddit began a roadshow to appeal to potential investors, the hurdles it faced were apparent. The company said it was aiming to raise up to $748 million in its offering, selling about 22 million shares at $31 to $34 each, according to a filing. That would put its valuation at around $6.4 billion, below the $10 billion valuation it fetched in 2021 during a private round of financing.

Skepticism about the I.P.O. was on display in a well-known Reddit community called WallStreetBets, a forum where people discuss stocks and trading and that helped fuel the rise of “meme stocks.” Some commenters said Reddit had not proved that it could make money from its users or its data.

“HOW DO I SHORT THIS DUMPSTER FIRE STOCK!” one WallStreetBets user wrote last month. (Reddit has cited the forum as a risk factor in its regulatory filings, warning that it 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 plenty of demand for a nice I.P.O. story,” said Barrett Daniels, a co-leader of U.S. I.P.O. services at Deloitte. “The reluctance here is to be the guinea pig.”

Reddit declined to make executives available for an interview, citing the quiet period before an I.P.O.

Mr. Huffman and Alexis Ohanian founded Reddit in 2005 from a University of Virginia dorm room. They wanted to create a start-up that let people pre-order food on a cellphone, called My Mobile Menu or MMM.

They pitched the idea to Paul Graham and Jessica Livingston, who were setting up Y Combinator, a start-up incubator. Mr. Graham and Ms. Livingston rejected the food-ordering proposal but helped the founders come up with what would become Reddit: a social, link-sharing message board.

Reddit is reminiscent of old-school online bulletin boards and forums. With more than 73 million daily users, it is made up of largely text-based forums divided by different topics of interest, called “subreddits.” These communities discuss everything from celebrity gossip to cosmetics advice to Bernese Mountain dogs. Thousands of volunteer moderators oversee the subreddits.

“Reddit is one of those rare places on the internet where you 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 departed, leaving Reddit in the hands of a small team of hard-core “Redditors” who were very protective of the site.

That team was adamantly against evolving how Reddit looked and worked, out of fear it would alienate its core users. Its participants resisted building a mobile application well into the rise of the iPhone era, and were largely uninterested and did not have the bandwidth to turn Reddit into a moneymaking business.

The company also had a laissez-faire attitude to moderating speech on the site, which sometimes landed it in hot water. Some subreddits were toxic and devoted to racist themes or nonconsensual nude photos, the type of content that advertisers found repellent. 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 kind of stagnated.”

In 2011, Condé Nast’s parent company, Advance Publications, made Reddit an independent entity after it recognized the site needed “start-up energy,” Mr. Lin said.

Yishan Wong, a former Facebook and PayPal engineer, joined Reddit as chief executive in 2012 to turbocharge the site. He later brought on Ms. Pao, a former venture capitalist, to work on business development and partnerships.

Mr. Wong helped jump-start Reddit’s development on mobile applications for the iPhone. Because Reddit had gone without an official mobile app for so long, independent developers had created their own versions of a Reddit app that users could pay to download.

When Mr. Wong left Reddit in 2014, Ms. Pao stepped in as interim chief executive. She began altering some of the site’s policies on free speech and put resources into building the advertising business, angering many of Reddit’s users, who believed she had overstepped.

They criticized Ms. Pao, who stepped down in 2015. Sam Altman, the chief executive of OpenAI, who was then on Reddit’s board of directors, said at the time that the attacks on Ms. Pao “were worse on Ellen because she is a woman.” Other employees said she was a scapegoat for general user angst.

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 firm was Reddit’s first investor.

Once back at the company, Mr. Huffman continued making policy changes on speech, including banning users and subreddits dedicated to hate speech. The company has built a team to deal with misinformation, and acquired A.I. companies to better detect and remove hate speech. He brought on new executives, such as Jen Wong, the chief operating officer, and Drew Vollero, the company’s first chief financial officer.

Under Mr. Huffman, Reddit built out its advertising business. The company has also tapped into its troves of user data, striking deals with companies like Google that want to use the data to train their large language models, a kind of artificial intelligence that underlies chatbots, on how to better understand and replicate human speech. Reddit expects more than $200 million in licensing fees over the next few years from these deals.

Reddit has also tried bringing its site out of the Stone Age by updating its design. It is experimenting with revamped 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 revolt by moderators last year. Mr. Huffman said in an interview at the time that there was general anxiety over Reddit’s changes as part of a natural “maturation process.”

Many current and former employees are relieved that after nearly 20 years 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 created by former employees, activity is soaring in anticipation of finally being able to sell their company shares, two former employees who are part of the group said.

Ms. Pao said she was “excited that the employees who worked really, really hard for years can finally get some upside.”

Some former employees were also trading photographs of a “challenge coin” made to honor their time at Reddit. Stamped on the coin was the company’s founding date and mascot (a smiling alien face based on a doodle Mr. Ohanian drew in college), according to a photo shared with The New York Times. The coin also had a brief message on it, using the site’s vernacular for when users have read a link: “Been There, Already Reddit.”

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