In Sign of the IPO Times, Coinbase Chooses Reddit Over a Road Show

In a first for a company going public, cryptocurrency giant Coinbase announced on Wednesday it will answer questions from potential investors via a Reddit "Ask Me Anything" thread.

"Hey Reddit, I’m Brian Armstrong, CEO and Cofounder of Coinbase. I believe that everyday investors should have access to the same info as large investors," wrote the company's CEO, explaining that the company would take questions for three days, and then respond via a video posted to the social media platform.

Armstrong's post has already prompted a flurry of questions from Reddit users, including ones about how the company will add new cryptocurrencies to its platform, how it regards competitors, and whether so-called decentralized exchanges pose an existential threat to the company.

Armstrong's decision to take to Reddit before it goes public is unusual, and comes at a time when the traditional initial public offering process has come under scrutiny like never before. Critics of IPOs, which involve banks charging fat fees to line up rich investors who get first crack at publicly-traded shares, say the process is too expensive and lets Wall Street insiders cash in at the expense of retail investors.

This has led more companies, including Coinbase and Roblox, to pursue direct listings—which involve floating existing shares on the market without using underwriters—or to go public via a SPAC, which involves getting acquired by a so-called "blank check company" that is already public.

In the case of Coinbase, Armstrong's Reddit post appears to be a rebuttal of the "road show"—another fixture of the traditional IPO process. Road shows involve top executives conducting a whirlwind series of meetings with deep-pocketed investors to tout their company's prospects before the firm goes public.

The road show process can serve as a valuable way for investors to vet a company but, as with other aspects of a traditional IPO, the benefits accrue almost entirely to those who are already rich and informed. In this context, Coinbase's Reddit gambit amounts to a populist alternative to the road show.

The Reddit decision is also on brand for Armstrong, who has long been a devout reader of the social media platform, and who has many times intervened personally in Reddit discussions about Coinbase. For the company, taking to Reddit may also serve to burnish its appeal with cryptocurrency enthusiasts, many of whom are likely to regard buying Coinbase shares as a new means of gaining exposure to the broader crypto industry.

The decision could also prove a risky one, however. Coinbase has long attracted ire on social media—especially Reddit—over frequent outages on its platform, and what many allege are poor customer service operations. As such, the Reddit forum may turn into a platform for Coinbase critics to vent.

The company appears to have anticipated such a development, though, as Armstrong's Reddit post notes Coinbase won't respond to questions that contain "any NSFW language [or] comments that are offensive or hateful." He also explains that, for legal reasons, Coinbase can't address comments about the company's valuation, non-public financial statements or its plans to list new cryptocurrencies.

Coinbase's Reddit forum is also unusual in that it comes during a so-called "quiet period," which refers to a period of time ahead of a public listing during which regulators strictly limit what a company can say to the media, and forbid it from making marketing claims.

As the Reddit forum is the first of its kind, it's likely the company would had to obtain permission from the Securities and Exchange Commission to host it in the first place. Coinbase did not reply to a request for comment about its decision to launch the Reddit forum. The SEC declined to comment.