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Here’s why Etsy is elbowing into Kickstarter’s turf

June 16, 2015, 3:25 PM UTC
Caption:An Etsy necklace hangs on a mannequin in the craft lab at the company's headquarters in the Brooklyn borough of New York, U.S., on Monday, May 4, 2015. Etsy Inc., a marketplace for handmade and vintage goods, raised $267 million in its initial public offering. Photographer: Victor J. Blue/Bloomberg via Getty Images
Photograph by Victor J. Blue — Bloomberg/Getty Images

As an online marketplace, Etsy already offers a forum for artisans to sell handmade goods and vintage items. But, what happens when those sellers find e-commerce success and suddenly need financing to expand their business?

Starting as soon as Tuesday, Etsy’s (ETSY) 1.4 million active sellers can use a new pilot program that allows sellers to raise money through the company’s website and then put those funds toward stepping up production or creating new product lines, according to The Wall Street Journal. During the two-month test of the crowdfunding program, Etsy will take 3.5% of each financing transaction, along with a 20-cent posting fee, which is the same cut the company typically gets for transactions on its site.

Etsy is testing the new service in response to feedback from its seller community. “A lot of sellers identified financing as a big hurdle to growth,” Etsy product manager Joe Lallouz told the Journal.

As is the case with other crowdfunding sites, Etsy plans to charge investors’ credit cards only when a seller’s fundraising goals are reached. About 100 vendors will participate in the Etsy program to start and the company will likely recommend that sellers proceed with a nine-month delivery window.

Even with just a test program, Etsy is entering competitive waters in an online crowdfunding space where companies like Kickstarter, Indiegogo, and GoFundMe already have significant traction. Last year, payments company PayPal created a crowdfunding policy to make it easier for entrepreneurs to raise money through the platform. In total, more than 1,250 different online platforms raised more than $16 billion globally last year, which was nearly three times the amount raised in 2013, according to research firm Massolution.

Etsy went public earlier this year and saw its share price nearly double in its first day of trading. But the online marketplace’s stock has fallen back to earth over the past month, after its first quarterly report since the IPO disappointed investors last month.
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