Condé Nast seems to have every intention of 'funding' this new company itself (that is, without raising outside investment), so it's really just removing the "Condé Nast" from the process but maintaining ownership.

Granted, they were rather autonomous (one reason why I know I stayed until the end of my contract) but with money in the bank, the new CEO can simply do things as easily as any of the other startups in the top 50. Before, that money would be going through some other big company approval process -- e.g., if reddit wants to hire away a fabulous programmer, it simply gets done.

If things go well, reddit continues to grow and increase its value, at which point, it could potentially be acquired, IPO [RDIT?], or just become a cash cow for Condé Nast.

Instead of Reddit being a division on the Org. chart of C.N., Reddit Inc. shares are held by C.N. This means that Reddit can take on equity investors to finance operations and operate externally of any organizational influence Conde Nast had (which may not have been much anyways).

Reddit, Inc., will be owned by Advance Publications, which also owns Condé Nast, so it will be a corporate sibling of CN and more independent of it. Advance Publications owns other divisions in addition to CN, including a newspaper division that presumably does not is not influenced very much by the magazine folks:

http://en.wikipedia.org/wiki/Advance_Publications

I suspect Condé Nast's advertising operations didn't mesh well with Reddit's audience. Within Condé Nast, they were likely just an irritating drain on resources.

If Reddit's going to monetize effectively (and that's a big 'if'), it needs to be operationally independent so it can get creative.

One issue not mentioned here is that Condé Nast has particular rules about staffing that are good for magazines but bad for web sites. These kinds of issues need to be worked through politically every single time they come up.

As a stand-alone entity, they won't be subject to those rules, and Condé Nast doesn't have to worry about the rest of its companies saying, "but reddit did it".

I'm interested in learning more about these rules. (This is not snark - I don't know anything about the magazine biz.)

From the other posted article it looks like it will make it easier for them to start selling it off...

"The move comes after Conde talked to several investors about selling off a chunk of the company as part of the spinout;"

Selling a minority stake to outside investors is a good way to capitalize the company and give it the resources it needs to grow. Reddit has been notoriously resource-starved. A few hundred million dollars in a partial equity sale fixes that without draining Conde Nast.

The question is, does growing a loss making company make sense? Or should you solve the monetization issue first.

Reddit doesn't need more money, it needs to be brave, slap up some real advertising, and start generating real revenue.

A website that does 100m pageviews, but makes $10m/yr profit is better than one that does 500m pageviews but makes no profit.

Their ad system has great potential, but right now it's under-developed...

If they keep Reddit as part of the mothership they can't sell it whole or in part. This is the first step in a process of divestment. The valuation that they are tossing around should be seen as the asking price if and when they do. It would highly surprise me if that asking price was met or even approached by an outside party.

Note that a deal at that valuation did not go through, and that likely that valuation was an important reason why it didn't.