There are reports surfacing that Reddit, the so called “Front Page of the Internet,” is raising a round of funding. According to Re/code, Reddit “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.”¹ More often than not, valuations seem to be absurdly inflated. Reddit’s valuation, on the other hand, seems to be drastically low. Just take a look at the stats that the company publishes:

Via Reddit, Accessed 8 September 2014

Any website/portal in the world would be happy with those numbers, with the only possible exception being Facebook. So why on earth did the company raise money? With that kind of user engagement, it seems that the company could easily get in the black. Well, a lot of it has to do with Reddit’s stance on ads. Rather than selling any and all space, and allowing any and all ad formats, Reddit is incredibly strict with its ad policy. According to Reddit CEO, Yishan Wong:

Our ads also don’t make quite as much money as most ads in other places do. The reason is because big, invasive flashy ads actually have the highest CPMs, and we don’t allow those. So we probably make a bit less on ads than most people expect.²

Don’t expect the ad model to change. Throughout the life of Reddit, the founders and team have been very hesitant to disrupt the users in any way, including allowing intrusive ads.