Etsy, the online marketplace popular with hipsters across the globe, is preparing for the biggest technology initial public offering (IPO) in New York since 1999. But many of the website’s artisan traders complain that the highly principled company is selling out its ideals for a quick buck.
Etsy reportedly preparing $300m IPO
The Brooklyn-based company, founded in 2005 by painter, carpenter and photographer Rob Kalin after he struggled to find anywhere to sell his handmade wooden computers, is expected to this month file for an IPO that could value it at about $2bn.
While many of Etsy’s sellers are excited about the opportunity to buy shares, others worry that floating on the stock market goes against the website’s founding purpose, as a community to help struggling artists sell their work – not a vehicle to make big profits for investors.
“Etsy is betraying its original artists by selling out to make money,” said Joy Appenzeller Bauer, an artist who has been selling her work on Etsy since 2009.
“Financially this may make some people very rich, but it is not what Etsy was meant to be about. Artists and crafters are now just window dressing to give the website the appearance that [items]are handmade, but in most cases they are not. They have become the online version of Pottery Barn.”
Appenzeller Bauer, from Chicago, claimed Etsy’s future was being driven by the interests of its shareholders, including venture capitalists Accel Partners, Index Ventures and Union Square Ventures.
“These people don’t have anything to do with art or Rob [Kalin]’s vision. This is just a way for them to cash in. If I were an investor I would be worried that the [Etsy] community is very concerned and angry about the IPO plans.”
Jessica Kennedy, who sells vintage tablecloths and napkins on Etsy from her home in San Francisco, said she thought the IPO plans were great for Etsy and the company would be “smart enough not to change how it operates to keep sellers and customers happy”.
“I know a lot of the members are angry and complaining,” she said. “But they [Etsy] have been very smart in how they’ve conducted business. I think it [the IPO]will be good for the members. But Etsy is not that great at communication in general, and telling us how they are changing things.”
Kennedy said she would definitely buy shares in the company if and when it floats. “Given the opportunity to buy shares absolutely I will,” she said.
Cat Gibson, who sells vintage items from her home in Austin, Texas, said going for an IPO was the logical thing for Etsy to do as the company grows, but said she worried that going public will force the company to change.
“I would applaud it [the IPO], but I wouldn’t want the company to have to answer to the shareholders,” said Gibson, 60. “It will almost have to become an eBay in order to satisfy shareholders. It’s almost already happened anyway. Etsy was meant to be an alternative to eBay.”
What Etsy’s sellers think of the company’s IPO plans matters. Etsy made $1.35bn in sales in 2013 by charging sellers 20 cents per listing and a 3.5% commission on sales. Etsy does not publish its profit figures, but has said it has turned a profit since 2009. The company, which was granted $5m of tax breaks by New York for it to stay in state despite the company previously stating that it “could only exist in Brooklyn”, employs 580 people with offices in London, Dublin, Berlin, Paris, Melbourne, San Francisco and Toronto.
On its website, the company describes sellers as the “heart and soul of Etsy”. “We are building a human, authentic and community-centric global and local marketplace,” it says. “We are committed to using the power of business to create a better world through our platform, our members, our employees and the communities we serve.”
Etsy’s much-mentioned five principles include “we are a mindful, transparent, and humane business” and “we keep it real, always”.
The company has twice parted ways with Kalin, its founder and former chief executive, following disagreements over the direction of the company. Kalin, who could not be reached for comment, has said trying to maximise shareholder value was “ridiculous”.
“I couldn’t run a company where you had to use that as an excuse for why it was doing things,” he said in an interview with Inc.com.
Before he left the company Kalin, who made his own furniture and underpants, told staff: “We do not want Etsy itself to be a big tuna fish. Those tuna are the big companies that all us small businesses are teaming up against.”
Analysts warn that any rift between Etsy and its sellers could harm the company’s future prospects.
“Recent changes in policy that allowed vendors to use manufacturers, previously only handmade or vintage was allowed, have caused rumblings in the community,” said Heloise Thomson, an analyst at Enders Analysis.
“Etsy distinguishes itself from eBay by encouraging a strong community through outreach and support, and has made enormous effort to establish a feelgood culture for sellers and customers alike. The company ethos is based on encouraging arts and crafts and supporting micro-businesses, being originally inspired by the tradition of craft fairs in the US.
“It’s no surprise then that an effort to increase Etsy’s revenue would cause upset, especially if the changes in policy to allow mass production has an impact on the selling ability of the homemade base. The vendors will feel that Etsy’s growth is coming at their expense, and damaging the Etsy culture in the process.”
Sucharita Mulpuru, lead eCommerce analyst at Forrester Research, said retaining artisan roots whilst growing to become a public company could prove a challenge that Etsy could navigate well.
“It is fundamentally a very profitable story, clearly their bankers think they have a very positive growth story,” she said. “Etsy could be a successor to eBay. What happens moving forward depends on the management team, it will be a challenge meeting the high expectations of Wall Street while keeping long-term sellers onboard.
“The early sellers were really pursuit artisans. Its hard to take them with you when you go commercial and mass market, it was the same with Whole Foods. There is always going to be that tension between staying true to your roots and growing with scale.
“Etsy is unique in that it was set up as an alternative to big business. Now it’s going for an IPO, which represents capitalism at its core.”
Etsy declined to comment for this article. Its chief executive, Chad Dickerson, was unavailable for interview.