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Reddit Raising a Big Round, and Some Y Combinator Players Are in the Mix

Y Combinator helped created the social news site nine years ago. Now some YC connections are helping it raise money.

Vjeran Pavic for Re/code

Reddit, the social news site with a big Web footprint, is raising a big funding round — with help from some of the people who helped launch the site nine years ago, including co-founder Alexis Ohanian and other people associated closely with startup incubator Y Combinator.

Sources said the almost-anything-goes site has reached a preliminary agreement to sell less than 10 percent of the company for more than $50 million. That could give the company a valuation of upward of $500 million.

Given investors’ new-found appetite for content companies — see: BuzzFeed, Twitch — Reddit’s valuation may swell significantly by the time the deal is done, well above the $400 million it was looking for in 2013.

Investors likely to be part of the round include Andreessen Horowitz and Sequoia Capital. Perhaps most intriguingly, some individuals associated with Y Combinator, the startup incubator that hatched Reddit in 2005, are also in the mix. That is where Ohanian recently became a partner.

The involvement, sources said, is thought to be important in making such an investment palatable to the often volatile Reddit community.

At least one other significant investor is involved, according to people familiar with the deal.

Advance Publications, the parent company of magazine publisher Condé Nast, is currently Reddit’s largest shareholder. Condé Nast bought Reddit in 2006 and spun it out a couple of years ago as a “re-incorporated independent entity.”

Other shareholders include employees. After the funding deal closes, Advance would still own around 50 percent of the company, sources said.

Reddit, Y Combinator, Ohanian and Advance executives declined to comment.

The funding is a big deal, since Reddit plays an important role on the Web because of its size and heft. The site, which consists solely of user-supplied photos, links and discussions, has said it has 133 million visitors a month. It also acts as a reliable content generator for publishers like BuzzFeed, which repackages stuff Redditors submit to their site.

The transaction comes as Reddit is making controversial headlines again, this time for its role in distributing stolen photos of celebrity actresses last week. Over the weekend, Reddit shut down a section of the site dedicated to posting the images, which were reportedly stolen from iCloud accounts.

But at the same time, CEO Yishan Wong explained that the site wasn’t going to change its underlying philosophy, which is to allow users to post almost anything they’d like, unless that would cause “imminent physical danger” or if it would “damage the integrity and ability of the site to function.”

“We consider ourselves not just a company running a website where one can post links and discuss them, but the government of a new type of community,” Wong wrote.

Right now, that community doesn’t generate very much revenue for its hosts. Over the last nine years, the free site has been extremely cautious about offending its users with money-making ideas, which means it has only dabbled in advertising.

Still, it has signaled its intent to get more serious about revenue by hiring Ellen Pao, a former partner at Kleiner Perkins, to head up its business operations.

Andreessen Horowitz’s potential bet on Reddit isn’t surprising, since the company has made other online media investments recently. The venture firm’s last prominent online content deal was in BuzzFeed, the site that many observers thought Reddit was addressing when it rolled out new guidelines for publications that use material found on the site.

Related: Andreessen Horowitz has also invested in Imgur, a photo-sharing site with deep ties to Reddit.

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