The Washington PostDemocracy Dies in Darkness

Can a happy, crunchy company like Etsy really survive on Wall Street?

Are these adorable babies in Etsy frog costumes ready for the stock market? ( <a href="http://www.lilcreatures.com.au/#!gallery/conh">Handout photo</a> / <a href="https://www.etsy.com/shop/LilCreatures">Lil' Creatures</a> )

When American companies go public, most make a promise — that they will “maximize shareholder value” — without saying exactly what those three words mean. Does that include paying hard-working employees minimum wage? Jacking up prices? Or cutting jobs even when they make a profit?

Then there's Etsy, the online bazaar of often bizarre artisanal wares that set Thursday for its stock debut. When it announced its initial public offering last month, the Brooklyn-based craft marketplace made it clear that it valued social consciousness more than making sure stockholders made the most dough.

“For decades now, the conventional and dominant retail model has relentlessly focused on delivering goods at the lowest price, valuing products and profit over community,” Etsy chief executive Chad Dickerson wrote in securities filings. “I do not believe that this race to the bottom is a sustainable, successful model. ... If we succeed, then other companies might replicate our model. We think the world will be a better place for it.”

Etsy's share price roughly doubled on its first day on the market, ending Thursday at $30 and helping the firm raise about $300 million. Valuing the company at about $3 billion, investors made Etsy one of the largest initial public offerings for a tech company this year.

Etsy leaders said they hope the offering will give them more visibility in a crowded tech marketplace and leave them with cash they need to grow. But Etsy's long-term success on the stock market will be determined largely by just how much conscious capitalism Wall Street investors are willing to bet on.

If too many are turned off by all the hand-holding and altruism, Etsy's stock price could sink — or, as some Etsy regulars worry, the firm could give in, and become exactly the type of company they hoped to avoid.

Etsy was founded in Brooklyn in 2005 by Rob Kalin, a carpenter and photographer looking for a place to sell computers he made out of wood. But the hipster marketplace now boasts more than 1 million active sellers, nearly 20 million active buyers and online aisles stocked with more than 26 million vintage trinkets and handmade crafts, including $500 cat battle armor and $30 planters that look like feet.

Etsy found a lucrative marketplace among the more than 50 million American freelancers seeking to sell their wares, and about $1.3 billion in merchandise was sold through the site in 2013. To make money, Etsy charges a 20-cent listing fee, takes a small cut off each item sold and offers ad space and payment services, all of which helped the company grow revenue by more than 50 percent last year, to nearly $200 million.

But none of that craftiness has produced any profit. Even with the sales bump, Etsy ended last year even further in the red, with a $15 million loss. The company said in filings that it had a history of losses and might not turn a profit anytime soon.

Etsy leaders warned in filings that they could choose environmentally friendly steps — like investing in cleaner shipping methods or "low-impact" data centers — even if they cost more money, and said their general "adherence to our values" could hurt how the e-commerce firm performs.

"We may take actions that we believe will benefit our business," the company said, "even if those actions do not maximize short- or medium-term financial results."

That flowers-in-her-hair sensibility would seem an easy fit for a crunchy company like Etsy, but the marketplace has already struggled with loyalists over its own identity crisis as it seeks to grow beyond its arts-and-crafts niche.

When Etsy in 2013 started allowing sellers to use outside manufacturers and shipping services to help them offload their stuff, the move was decried by its home-grown sellers as a step toward hyper-corporatized, mass-market, eBay-ness. Jill O'Leary, whose Fiberluscious store sells handmade pincushions, wrote on an Etsy message board, "I feel like I've just got punched in the stomach."

Etsy will become the second and largest business to go public that is also certified as a "B corporation," a label given by the nonprofit B Lab to companies that pledge to meet high-minded social and environmental goals. Hipster eyeglass maker Warby Parker and outdoor outfitter Patagonia are also in the ranks.

The designation is not just lip service: Shareholders have ways to punish the leaders of a B Corp they feel has ditched its pledge or lost its halo, including suing the directors for failure to pursue a stated public benefit. In turn, those investors are expected to understand that a company like Etsy will be far less voracious in pursuing traditional business motives, like swollen profits, over a greater social good.

Etsy has already made waves on the stock market by setting aside some of its shares for its customers and mom-and-pop investors, breaking with the Wall Street tradition of reserving early access to shares for the stock debut's managing bank and its top customers (who benefit from the stock's first-day pop).

And Etsy's chief executive, Chad Dickerson, has written in filings that Etsy won't give quarterly or yearly guidance on how much the company is earning, as nearly all other public firms do. “We are more focused on creating long-term results for us and our community than short-term results that lack that promise," Dickerson wrote.

No one can blame Etsy for not putting their money where their mouth is. The company offers employees bikes for commuting to work, has removed its individual employee trash cans and composts 600 pounds of food waste every month on the back of an orange bike.

For what it's worth, Etsy's most prized asset, its sellers, are torn over the effect Wall Street will have on their online market. On one Etsy message-board discussion, a South Carolina seller of "free spirited bohemian luxury" jewelry guessed the offering could lead to a flood of new customers, while another worried the end was near.

"I predict Etsy's environment will change drastically with an IPO — and I don't feel the inevitable changes will be as benign to our community as Etsy (or investors) would have us think," wrote Jessica Rankin, the California purveyor of handmade jewelry maker LyricRabbit. "I don't want a shop that fades into the woodwork of the internet, that blends in with competition, that disappears. Finding another home for my shop(s) may be the only way I have a hand in preserving it."

Loading...