This is a guest post from Mimi Li.
Etsy recently announced that it will pursue an initial public offering (IPO) after years of indicating that it had plans to go public. The favorite commercial outlet of artists and artisans, and cornucopia for the eyes and wallet of less-handy patrons, filed with the Securities and Exchange Commission (or the SEC. Acronyms abound.) on March 4th and gave the general public a first look behind the scenes of the company and its plans. If you aren’t a regular reader of the Wall Street Journal, you might be wondering about the impact to the community of makers and artisans on the site. Here’s an overview of what Etsy’s IPO means for the company and for the more than 1.1 million active artisan partners.
IPO? That’s stocks and stuff, right?
Yes. Pretty much. The short explanation of IPOs is that a company that is currently privately held decides to make an initial public offering to give the public a chance to invest in the company and to share the risks and proceeds of its growth. Companies go public in order to raise funds for capital projects, to position themselves for better interest rates when borrowing money, to raise their prestige, and just to raise cash, period. Ka-ching.
Why go public, Etsy?
At the risk of sounding cynical, this a big opportunity, maybe the opportunity, for Etsy’s initial investors and management to cash out. Why? The company’s key plans for the proceeds of the IPO are
– to increase visibility (almost always a legitimate goal)
– and to raise money for its working capital.
The working capital bit is one way to hint at its admitted history of operating at a loss; but at its heart, the Etsy IPO is fragrant with the smell of cashing out. Etsy started raising serious cash roughly ten years ago, and venture capital investors don’t like to wait too long for their cash. It’s time for the Etsy investors to turn the company into mean green while the IPO market is good.
[Laura’s Note: Seriously? Etsy hasn’t paid them in 10 years?! Bring me the money, honey!]
What will change about the company?
In the short term, relatively little. However, when a company goes public, it will have to share much more information about its inner workings and deal with the many shareholders who will now (theoretically) have a say in how the company is run. It may mean future compromises to the company’s stated mission and values unless the company is blessed with a strong management team who can make sure that the company’s actions are consistent with its stated values, but again, it’s hard to see those changes right now.
[Laura’s Note: At least Etsy sellers will have more information about what’s happening at Etsy, from a business standpoint. They have had a problem of being too close-lipped in the past, which really upsets Etsians.]
How will this affects artists and sellers?
Not much for the time being. If going public means the company steps up on developing technology to benefit the seller and/or buyer experience, it would certainly be a positive for artists on the platform. However, any changes will likely take time, and it sounds like resources and operations devoted to what the tech industry calls “product development” are a bit thin at the moment.
So should I buy shares in Etsy?
My opinion? Not without a definite exit timeline. The tech IPO market has been very friendly for a few years. Some may even call it a bubble, which means that it may burst soon. The only time when it makes sense to invest in a specific company is if you’re sure that the company is a gold mine. No one can know for sure if something is a goldmine, so buying Etsy shares will be a calculated risk, just like buying shares of any specific company. A less milquetoast answer would be to stick to your normal investment strategy. If you feel moved to buy Etsy shares, buy away, but as with anything in the stock market, don’t expect miracles.
[Laura’s Note: Investing is hard. If you don’t normally buy stock, definitely talk to a financial advisor before looking into purchasing shares of Etsy. Also, this article does not constitute a professional relationship between you and Mimi or myself. This article is written for informational purposes only.]
Mimi Li is a child of the liberal arts who went corporate. She consults with small, family-owned businesses on the next steps to take in their businesses and accepts requests from individuals on communicating and marketing their strengths. Mimi has held research positions and earned her MBA from Cornell University. She exercises her brain at The Hydra Life.