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Startups should pay close attention to Reddit ‘notes’

January 5, 2015, 8:01 PM UTC
Reddit mascots are displayed at the company's headquarters in San Francisco
Reddit mascots are displayed at the company's headquarters in San Francisco, California April 15, 2014. Reddit, a website with a retro-'90s look and space-alien mascot that tracks everything from online news to celebrity Q&As, is going after more eyeballs, and advertising, by allowing members of its passionate community to post their own news more quickly and easily. REUTERS/Robert Galbraith (UNITED STATES - Tags: BUSINESS SCIENCE TECHNOLOGY) - RTR3LFPE
Photograph by Robert Galbraith — Reuters

When social news site Reddit raised $50 million in venture capital funding last fall, it said that it wanted to allocate around 10% of its overall equity to active users. Then, in December, it announced that the equity would take the form of something called “Reddit notes.” From a blog post:

To celebrate all of you and your contributions, we plan to give away reddit notes in a random lottery. As of this point, it looks like we’re going to have approximately 950,000 reddit notes to divide among active user accounts. There aren’t as many reddit notes as there are accounts, so if you get one, lucky you! Eligible recipients of reddit notes will be determined based on activities before 9/30/14, and we plan to give them away in the fall of 2015.

No additional details yet, except that Reddit has repeatedly suggested that it is planning to leverage some sort of crypto-currency — with notes being transferable between users. But, from my perspective, successful execution could have repercussions far beyond the Reddit community.

In an era where companies are staying private longer, and in which consumer loyalty to one tech platform over another can be paramount, the concept of sharing equity with users is likely to be replicated by other startups. Basically the privately-held version of Virgin America (VA) letting top frequent fliers participate in its IPO — but even more exclusive since there is no generally-available security 24 hours later.

If I were a VC-backed entrepreneur right now, I’d be paying very close attention to how Reddit structures its “notes” — with an eye toward copying and improving on it.

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