Reddit plans to place a big chunk of its IPO shares in the hands of its users, an unusual move that could build loyalty but also comes with risk.
The company plans to reserve an as-yet-undetermined number of shares for 75,000 of its most prolific so-called redditors when it goes public next month, according to people familiar with the matter. The users will have the opportunity to buy Reddit shares at its initial public offering price before the stock starts trading, a privilege normally reserved only for big investors.
Ideally for the company and its underwriters, Reddit shares will rise in their stock-market debut, bestowing big gains on those who buy in at the IPO price. If the stock falls, however, it could anger those members of Reddit’s community—a group that, broadly speaking, hasn’t shied away from boycotts in the past.
Banks generally favor selling the bulk of an IPO to big money managers that tend to hold stocks for a relatively long time. Individual investors are viewed as more fickle and prone to selling at the first sign of weakness.
This seems like it will backfire hard. What counts as prolific? My account is old and it has like 600k karma as a result, but that's nothing compared to any karma farmer account that has been around for a year. Some of the most active mods who underpin the entire infrastructure and profit model of the website don't post while bot networks post 24/7. When- not if- the value of that stock plummets after the IPO, they've just pissed off who they deem to be the 75,000 most valuable users.