Reddit’s Funding Round Is for Real, and It’s Only for Angels

If you have a year like the one Reddit had last year — the kind of year where the President of the United States stops by to court your audience — it makes perfect sense to follow that up by raising money.

But the Reddit crew seems to delight in flouting convention, so it also makes sense that there’s a twist to the funding round that’s currently under way.

As TechCrunch reported, the social news site is raising money at a $400 million valuation. But people familiar with the company say Reddit is only raising a fraction of the money it could — most likely about $1 million. And it only wants the cash from certain influential angel investors.

Why not raise more? For starters, because the company doesn’t need it: When Conde Nast and its parent company Advance Publications spun out Reddit as an independent company in 2011, the social site had $20 million in the bank. Since Reddit is able to generate a ton of traffic with a very lean staff, it still has most of that money, around $18 million.

Instead of capital, I’m told that what Reddit CEO Yishan Wong is really looking for is buy-in, and input, from Silicon Valley’s elite investors.

And any angel who does put money in is likely more interested in something other than a financial return. If Reddit figures out a scalable business model, it could well be worth much more than $400 million. But it’s also unlikely to be the ginormous home run that a small investor can get if they bet correctly on a bona fide startup, when their (relatively) modest contribution can buy them a real stake.

I also assume that Wong will be able to find no shortage of wealthy, brainy tech folks willing to write checks and offer advice. I’ve asked Wong for comment, and will update if I get it.