It looks like Etsy's IPO is coming somewhat out of necessity.

By Stephen Gandel
March 5, 2015

Etsy seemed like the one company you could actually believe when it denied that it had any plans to go public.

As recently as last May, CEO Chad Dickerson said his company was different from the rest of Silicon Valley. Etsy could go public, but not anytime soon, and, Dickerson said, not in the next year. There was no “blood thirst to go public” at Etsy, he claimed.

The story was not that simple.

On Wednesday, Etsy—which runs a marketplace for handcrafted and vintage goods, and whose corporate identity is intentionally akin to its crafters—filed for an initial public offering. The company chose the Nasdaq over the New York Stock Exchange, where there is at least some hand trading of stocks. It didn’t even match its image on that front.

The odd thing is that as Etsy’s desire for the public market grew, similar startups have been able to quench those thirsts with other funding sources. The story line these days is that Silicon Valley is filled with so-called unicorns, companies worth more than a billion dollars that are staying private. There’s even a hoodie unicorn on one of Fortune’s recent covers. And despite a hot stock market, there have been almost no technology IPOs this year.

All of this has created a sense that, somehow, public markets are broken. Stock markets used to be the place to be for growing companies looking to grow even faster. Perhaps not so much any more? This is, after all, the age of high-frequency trading, quarterly earnings reports, and activist investing. More and more, it seems, public markets are not the place to find long-term investors.

But the fact that Etsy is going public stands in contrast to that notion. In a letter to prospective investors, Dickerson says going public will provide the company with long-term capital and business structure. He stresses that Etsy is a community and that he would like its users and crafters to become its shareholders. The company, however, is only reserving 5% of its IPO for individual shareholders. The rest of the shares, at least initially, will go to institutional investors.

Dickerson has said in the past that his company would not be going public because it was “different,” but he now seems to be suggesting that Etsy being public was always the natural extension of the company’s value system. Or maybe the fact that IPOs are out these days is why Etsy wants in. It just likes being different.

Then again, it looks like Etsy’s IPO is coming somewhat out of necessity. The company has lost money for the past three years, and those losses are growing. (Etsy says that’s not so. In its offering statement, it says that if you take out a number of expenses that really are not part of its day-to-day business, the company made $23 million last year. A handcrafted figure for its bottom line. How Etsy!) And its revenue from items sold on its website is slowing. Lately, the fastest growing revenue stream for Etsy is coming from products and services it is selling to the people and small businesses trying to sell their stuff on the marketplace.

With the new rules passed since Facebook’s IPO that make it easier for growing startups to stay private, you would think that Etsy could have found a way to find new investors without going public. Private markets are likely more vibrant then they have ever been for growing companies.

Cloud software company Box, which went public earlier this year, was also losing money. So, it looks like the companies that are making money or have the best prospects are, more than ever, able to stay private. That could be the bottom line, and the real bad news, for average investors.

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