The concept Reddit unveiled Friday—nonmonetary gifts known as Reddit Notes to be distributed to active redditors in mid-2015—has been years in the making, Inc. has learned. And it will look different than what many users expected. Reddit announced in September, as it closed a $50 million round of venture-capital funding, that it hoped "to find a way for its users 'to own some of Reddit.' " And it decided at that point to allocate 10 percent of the new funding to making that happen. A blog post Friday announced a few more details, including that fewer than 1 million of the "digital asset" will be released to more than 6 million eligible active Reddit users, who are known as redditors.
The Bright and Hazy Future
The new post leaves much unclear, however, including how Reddit Notes will be structured; how users will be able to be trade, donate, or cash them in; and whether the Notes will actually have equity backing. For instance, in early online communications about the company's plans for distributing some portion of the bounty from the September funding round, then-CEO Yishan Wong referred to the units as "a cryptocurrency" "exchangeable (backed) by those shares of reddit."
But in an interview this week, the project leader of Reddit Notes, Daniel Lim, who has been with Reddit for two months, said explicitly that the current iteration of Reddit Notes are not going to have immediate cash value—or equity value. "It's not a currency. In our minds it's not equity," Lim says. How should redditors think about Reddit Notes? "Think about how other companies reward their customers. Like McDonald's Monopoly game."
Alexis Ohanian, one of the founders of Reddit and the company's current executive chairman, explained to Inc. that Reddit has been working with existing government regulations to structure the Notes, and not every detail is decided. "There are still things we have to figure out from a finance perspective," he says.
"In a lot of ways, it's not like a currency. It's something of value, like sugar or gold or bacon," he says. "It can be transferred."
As a "digital asset," is it cryptocurrency? While Reddit Notes will likely be based on the evolving block chain protocol, Lim says, well, not exactly. "I would not call it a cryptocurrency," he says. "I would call it a digital asset and we are building something that will distribute it."
The Idea's Real Roots
According to company executives, including the big gift to the Reddit community in the $50 million funding round was one of the last significant moves by now-former CEO Yishan Wong, who put together the funding round. (Wong departed Reddit last month after a kerfuffle involving his decision to relocate the company from San Francisco to Daly City, California.)
But Inc. has learned the idea's roots predate Wong's two-year tenure at the company significantly. According to Ohanian, he'd been mulling the idea of giving back to the Reddit community for years, and brought up the idea to executives at Reddit's parent company around September of 2011.
"After Reddit first spun out, they were looking for a CEO," Ohanian says, of conversations with lawyers and a recruiter after Conde Nast released ownership of Reddit to Conde Nast's parent company, Advance Publications. "I remember talking to all these lawyers about finding a way that users could own shares in the company."
The lawyers were not so amenable to the idea from the founder. "They said, 'absolutely not,' " according to Ohanian.
However Reddit Notes actually evolve and are distributed, the company is dedicated to the $5 million idea, from the inside—and outside. Investor Sam Altman, the influential president of startup school Y Combinator, of which both he and Ohanian are alums, said in an AMA that he vehemently supports the creation of the financial distribution to redditors—but hopes to see it grow over time.
We're working on a way to give 10% of our shares from this round to the reddit community. I hope we can increase community ownership over time--I've always thought communities like reddit should mostly own themselves, and that it's time for some innovation around corporate structure here.
Ohanian says regardless of the specific form the Reddit Note takes, the company is going to great lengths to ensure no favoritism of users happens in the distribution of the assets.
"Thinking of Reddit from the very start, I wrote that all redditors are equal; no redditor is more equal than others," he says of an entry on the site's original FAQ section. "Just as long as you are an active, good user, you are equal."
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