Reddit IPO in March

Our private assets team has been specializing in late-stage, pre-IPO companies trading at discounts in secondary markets

Frozen shut for a year and a half, the IPO market finally seemed to be thawing.  As the IPO market opens again, there are the dozens of companies that will hit the public markets in the next several quarters.

Thematically, we believe there is unique opportunity in secondary markets to acquire discounted shares of late-stage private companies that had to delay their IPOs – until now.

We are acquiring pre-IPO deals through direct secondary transactions – for fundamentally healthy companies at material discounts to their 2020-2021 financing rounds with visibility on the upcoming IPOs in 2024 and 2025.

Our criteria:

• Hung IPOs: Late-stage companies with visibility on liquidity and expected IPOs in 12-30 months given today’s improving capital markets.
• Unicorns: Brand-name, private “unicorn” companies experiencing top-line CAGRs of 25%+ and achieving profitability.
• Discounts: Price matters. We negotiate substantial discounts ranging from 50-70% per company through secondary transactions.
• Direct on Cap Table: We prefer to be direct transfer on the company’s cap table. We do not invest through SPVs that have underlying management and incentive fees.
• Size Matters: We source shares from retail holders (often ex-employees) who have modest position sizes and are willing to transaction at substantial discounts.
• Improved Experience: SPV is available to Qualified Purchasers, elimination of J-Curve as assets will be acquired over ~3-month investment period, accelerated IPOs and shorter duration to monetization. Approved for custody. $100,000 investment minimums. IRAs accepted.

We acquired pre-IPO Reddit shares at $29.64 per-share in November 2023 from two ex-employees. As expected, Reddit (NYSE: RDDT) completed its IPO in March 2024 and is trading at ~$45 per-share (~1.5x net MOIC in a few months). In a nutshell, these “pre-IPO secondaries” opportunities are offering potential 1.3-1.7x net MOICs over ~12-18-month holding periods given the still depressed valuations in smaller, inefficient pockets of the secondary market.

We expect the RDDT share price to be volatile over the coming months. The SPV’s shares are subject to a ~6-month post IPO lock-up period. The preliminary indication is that the lock-up will expire on the third day after Reddit announces Q2 ’24 earnings (which is expected to be 135-150 days after the IPO, or in early to mid-August).  We expect to receive our public shares around that time, and plan to distribute the position to client accounts after the lock-up expires. Please note that shares distributed to client accounts will be net of SPV fees and expenses. We will share additional information in advance as we receive it, so investors remain informed.

Company Overview: Reddit is one of the largest social media platforms in the world with more than 500 million monthly active users (MAUs) and nearly 60 million daily active users (DAUs). Reddit’s core product is its platform that allows communities with similar interests to share and engage user-generated content. Reddit runs a digital advertising business embedded within their platform akin to other social media platforms (e.g., Meta, Twitter, and Pinterest). The company’s digital advertising business accounts for a majority of the current revenue and is expected to serve as the core driver of profitability in the near-term.