Etsy Eases Into Crowdfunding

Brooklyn-based arts and crafts marketplace Etsy is adding something new to their platform to live alongside the custom-made mohair hamster sweaters now on offer.

Later today (June 16), Etsy enthusiasts may see a pilot program launch that will allow sellers to raise money on the company’s website to fund the manufacturing of new products.

“We’re super passionate about our seller community,” said Joe Lallouz, an Etsy product manager, according to The Wall Street Journal. “What are the best ways to help them grow and scale? A lot of sellers identified financing as a big hurdle to growth.”

Today there are a little under one-and-a-half million active merchants on Etsy, which earns about 3.5 percent of each transaction, plus 20 cents for posting. The two-month pilot rolling out today for its forthcoming Fund project is aimed at helping that seller community raise funds so that their businesses (and ipso facto Etsy’s business) can grow.

Crowdfunding is undeniably hot right now — in the last year 1,250 online platforms worldwide raised $16.2 billion, a 167 percent pickup from 2013, according to a March report by Los Angeles-based research firm Massolution. And a big chunk of that money is going to fund business ventures: 41 percent – $6.7 billion – of funds raised via crowdfunding go to building out business.

“I would predict that we would see more scrutiny and more regulation coming” to crowdfunding, said Richard Swart, a researcher at the University of California, Berkeley, and an crowdfunding consultant.

Etsy’s take on crowdfunding will not hit potential backers’ credit cards until a seller’s funding goal is met. Initially, 100 vendors will participate, and the company is recommending a nine-month delivery window for products created using crowdfunding.

Etsy estimates the first crowdfunding projects will ship in six months.

The move has Etsy looking for ways to distinguish itself in a marketplace increasingly crowded by online marketplaces. Shares on the site have fallen to where they were at the time of the firm’s IPO in April and have been down about 20 percent over the last month or so. On May 19, the company reported a $36.6 million first quarter loss, WSJ reported.

“It’s only going to get more competitive,” said Tom Forte, an eCommerce analyst at investment bank Brean Capital LLC. “I anticipate that number [of online sales platforms] will increase over time.”

Etsy notes the crowdfunding project has been under development for the last half year and is not a reaction to a weak Q1 performance.
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