Reddit Raises $50 Million, Plans to Share Stock With Community Members

President of Y Combinator, Sam Altman.
Brian Ach | Getty Images
President of Y Combinator, Sam Altman.

Reddit, the Internet's favorite place to share links, has raised about $50 million in funding.

This is the round we told you about earlier this month, and many of the details are in keeping with that report.

What's new and interesting is that the round was led by an individual — Y Combinator president Sam Altman — and that he, along with the other investors, plans to allocate 10 percent of the equity they are buying to Reddit users.

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How exactly that's going to be managed hasn't yet been figured out (or, more importantly, approved by bankers and lawyers), but Altman said Reddit may dole out shares using a distributed accounting system, a la the bitcoin block chain.

Though Altman is not providing the majority of the $50 million, he is leading the round and setting its terms. Other investors include Andreessen Horowitz and Sequoia. Other individuals include Peter Thiel, Ron Conway, Paul Buchheit, Jared Leto, Jessica Livingston, Kevin and Julia Hartz, Mariam Naficy, Josh Kushner, Calvin Broadus Jr. (a.k.a. Snoop Dogg) and CEO Yishan Wong.

Conde Nast parent company Advance, which previously bought Reddit and spun it off, retains a board seat. It also still owns more than half the company, said a source. Meanwhile, Altman said he is relinquishing any votes associated with his shares to the Reddit management team.

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"These community sites, the community has always generated the value and rarely gotten it for themselves," Altman told Re/code.

Reddit is downplaying the funding. "An investment like this doesn't mean we're rich or successful," Wong wrote in a blog post. "A couple days after we closed the financing, Sam came to our office and handed me a genuine 100 trillion dollar Zimbabwean note, as a reminder to us of the difference between money and value. Money can become worthless very quickly, value is something that is built over time through hard work."

Justin Pumfrey | Iconica | Getty Images

Wong said the funding would be used to add to Reddit's staff of more than 60 for areas such as product development, community management, moderation tools, mobile tools, ad and gifts products and paying infrastructure costs.

Having attended the first Y Combinator class himself along with the founders of Reddit, Altman said he was one of the first users of the site and has used it every day for the past nine years. (There are a lot of recurring names involved here. Reddit co-founder Alexis Ohanian now also works at Y Combinator and is a board member of Reddit.)

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Where venture investors might have a fiduciary duty to ask for more control and not give shares away, Altman has no such concerns about his own money. "It seems to me, speaking as a purely selfish investor, that this is [in] the long-term interest of the health of the company," he said.

After seeing social media sites come and go at the mercy of users who feel they own the place (exhibit A: Reddit's original competitor Digg), Reddit has been largely deferential to its community. It has changed its design very little over the years, and made only modest attempts to bring in money.

In very recent memory, the company took a week to formulate a stance on whether to ban forums that were aggressively posting links to a trove of private nude photos stolen from the iPhones of actresses like Jennifer Lawrence. Eventually, Reddit did ban the forums, awkwardly justifying its actions in a series of blog posts and comments by Wong and other employees.

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You could see giving stock to users as a continuation of that deference. It's a way to keep people feeling invested even as Reddit becomes a company that venture capitalists value at hundreds of millions of dollars (at least five of them, sources said).

"There are sort of these dual competing values that most people, including people who work at Reddit, have: free speech and basic human decency. They're both really important," said Altman. "If you start restricting free speech, in gray areas you silence minorities that need their point to be heard."

As for the high-profile photo leak, Altman said, "Honestly, in that specific case, I disagreed with how they handled it. I thought they were slow and not very clear in their reaction. But I believe their heart is in the right place."

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