Etsy is Hoping a Crowdfunding Platform Will Sweeten the Deal for Sellers

NEW YORK (TheStreet) -- Etsy (ETSY) is launching a crowdfunding platform to help its sellers raise funds before manufacturing new goods.

The Brooklyn-based online crafts and handmade goods marketplace noticed that one of the major pain points for independent merchants and sellers was fronting the money to create a product in advance of selling it. With the new program, called Fund, sellers will be able to raise the money before shelling out the big bucks on materials and machinery.

"We believe that crowdfunding on Etsy is a natural way for sellers to forge even more resonant connections with their existing communities and customer bases and to grow in ways that may not have been possible before," Etsy chief product manager Joe Lallouz wrote in a blog post. "Fund on Etsy can also expand the breadth of products buyers can find in our marketplace that they can't find anywhere else."

The Fund pilot program launched today and will last for two months. The pilot will be available to about 100 merchants, according to The Wall Street Journal, and they will be expected to ship goods that are backed by Fund within nine months. Etsy will take its usual 3.5% of each transaction that is funded by the program plus a 20-cent posting fee.

Like with other crowdfunding platforms such as Kickstarter, backers' credit cards will not be charged until merchants reach their full funding goal.

The crowdfunding business is booming these days, thanks in part to the popularity of Kickstarter and others. According to the research firm Massolution, more than 1,250 online platforms around the world raised a combined $16.2 billion last year, up 167% from 2013.

Since Etsy went public in April, the company has been struggling to meet the demands of Wall Street, reporting a loss of $36.6 million in the first quarter of 2015 and seeing its stock drop about 20% over the past month back down to its IPO price of $16. Counterfeit accusations from Wedbush analyst Gil Luria last month certainly didn't help the company either. Nor did reports of a new Handmade marketplace from Amazon (AMZN).

Shares went up slightly following reports of the new crowdfunding platform and are currently trading around $16.30, down 0.12%.

Etsy is facing increasing competition both from larger marketplaces like Amazon and eBay (EBAY) as well as from services like Shopify (SHOP) and GoDaddy (GDDY) that allow merchants to sell independently on their own sites.

Jewelry maker Candis Jones decided to leave Etsy, when she realized how easy it was to set up her own site using GoDaddy. "It's all the ease I had through Etsy without the fees," she said in an interview. Plus she gets to place her brand front and center "instead of Etsy with the Jones Market hidden in there somewhere."

Perhaps tying in a crowdfunding platform to its marketplace could sweeten the deal enough to attract and retain more merchants in the face of growing competition.

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