JOIN USEtsy IPO tests pledge to balance call, profit
Online craft bazaar Etsy made its debut on the Nasdaq stock market recently, signaling the birth of an unusual public corporation — and not just because its employees carry around compost on bicycles, or because its regulatory filings are peppered with phrases like, “We keep it real, always.”
Etsy is one of a growing number of companies, called B Corps, that pledge to adhere to social and environmental accountability guidelines set by a nonprofit organisation called B Lab. And Etsy recently became only the second for-profit company to go public out of more than 1,000 companies that have that certification.
Ringing the opening bell at Nasdaq’s headquarters in Times Square, amid cheers and confetti and Etsy ads flashing on the screens outside, Etsy’s chief executive, Chad Dickerson, called the debut “an important milestone”.
Selected Etsy vendors held a bazaar of their wares in one corner of the square, including a Brooklyn-based vintage clothes seller, an Israeli jewellery designer, and a Somerset, Massachusetts, store that sells superhero capes for children.
Small-business roots
Overnight, Etsy priced its public offering at $16 a share, at the top end of the company’s proposed range, valuing the company at $1.78 billion. And in a nod to its small-business roots, it capped the amount of stock retail investors had access to in the offering to $2,500, to get as many individuals as possible to participate, including its vendors. Etsy shares closed on Friday at $27.58.
Etsy’s IPO is indeed a milestone for a quirky online marketplace born a decade ago in a Brooklyn loft as a way for one of its founders to peddle handmade wooden goods.
Etsy declares in its public offering prospectus that it wants to change the decades-old conventional retail model of valuing profits over community. It states that its reputation depends on maintaining its B Corp status by continuing to offer employees stock options and paid time for volunteering, paying all part-time and temporary workers 40 per cent above local living wages, teaching local women and minorities programming skills, and composting its food waste.
And though Etsy has become a significant business, with sales jumping 56 per cent last year from the previous year to $195.6 million, it still booked a loss of $15 million.
Etsy said that at the end of 2014, the site had 19.8 million active buyers, or shoppers that made at least one purchase in the previous 12 months.
“The current shareholder model doesn’t meet the needs of entrepreneurs, business leaders and investors who want to make money and make a difference,” said Jay Coen Gilbert, co-founder of B Lab, which assesses and certifies companies along social and environmental accountability standards.
Untested scheme
Depending on whom you ask, B Corp companies like Etsy are a panacea to the ills of shareholder capitalism, a sure money-losing proposition, or a tricky and untested scheme that opens a legal can of worms.
The movement itself grew out of a basketball apparel start-up that Gilbert helped found in the early 1990s, making sure its suppliers paid their workers fair wages and donating as much as 10 per cent of corporate profits to charity. But after selling the company in 2005, Gilbert and his team found that its new owners swiftly swept aside the company’s social endeavors. Haunted by that experience, the team set out to devise a system that could allow a company to formally commit to social and environmental goals.
B Lab has certified more than 1,000 companies in the United States as B Corps, including Patagonia, Warby Parker, and Method. In addition, 27 states have adopted laws that can award companies status as “public benefit corporations”, letting them emphasise social or environmental concerns over profits, and more than a dozen others have introduced similar legislation.
Most B Corp companies, including Method, have opted to stay private. As a public company, however, Etsy is expected to face scrutiny from investors on how much it prioritises its noble pursuits over its bottom line. And though Etsy is likely to attract investors with a taste for sustainable investing, there is a lesser-known twist that investors are being warned to heed.
Under B Lab rules, companies incorporated in states with benefit corporation laws must eventually comply with their home states’ standards to maintain that benefit corporation status. In Delaware, where Etsy is incorporated, even small shareholders of a public benefit corporation could sue the company, claiming it had failed to fulfill its social or environmental duties.
B Lab is giving companies four years from the date any relevant state legislation is passed to comply with the state law or risk losing B Corp certification. Since Delaware passed that law in August 2013, Etsy has until 2017 to become a benefit corporation. Dickerson said that, for now, Etsy had no plans to transition to a benefit corporation. “Regardless of certification, we plan to focus on delivering a strong business that also generates social good,” he said.