To short a stock is kind of difficult to do on an IPO because you have to borrow a stock to short it, and pre-IPO only the underwriters have that stock, and are not usually lending it out. Naked shorting – where you don’t actually have a stock but you sell it anyway, lol – is illegal. I know there are a lot of folks talking about shorting RDDT here but you have to actually borrow a stock to short it.

More likely is that Reddit’s trying to get people to buy at a fixed price before it tanks, because any shares purchased pre-IPO are guaranteed cash at a set rate for them, not subject to the trading volatility that will come with the IPO. I think that’s why WSJ is calling Reddit’s strategy an “unusual IPO wager.”

So far this year it’s been a rocky start for IPOs anyway, many are trading below IPO value, even companies that have more in the way of tangible assets than Reddit. But the clock is against them, the Reddit board pretty much has to do it as soon as possible or fight the added market volatility that comes with an election year, among other reasons.

I’ve linked a couple of articles; the second one especially is very helpful. It talks about a similar situation, a healthcare company called BrightSpring with a heavy debt load looking for capitalization that went for an IPO in January 2024, and how they spent their pre-IPO time trying to talk investors into buying at a set price beforehand because that’s how they could still get some cash out of an otherwise shitty IPO showing. Personally, I think this is exactly what Reddit is trying to do, and what this car-dealership style hawking of pre-IPO shares via email is trying to accomplish for the Reddit board.

Archive links:
WSJ: Reddit Plans to Sell Stock to Loyal Users in Unusual IPO Wager
WSJ: Will the IPO Market Spring Back in 2024? The First Big Debut Offers Clues