By Leslie Picker
with contributions from Bree Taylor
 on February 5, 2015

(Bloomberg) — Wall Street may be salivating over Etsy Inc.’s coming IPO. Cherri Rodriguez is dreading it.

Rodriguez, 54, sells crochet rasta hats for the Burning Man festival on Etsy. She recently scaled back her operation after a decade on the site because it changed a longstanding handmade- only policy and welcomed manufacturers. Like many Etsy veterans, Rodriguez frets that once Etsy goes public, investors’ appetite for growth will erase the artisanal ethos altogether.

Since Bloomberg reported the IPO plans last month, Etsy merchants have expressed their anguish in online forums. Some wonder if Etsy will charge them more to list their products. Others say they may defect to rival sites. For her part, Rodriguez has started a campaign to buy $1.5 million worth of shares and agitate for change. The clamor won’t derail the IPO, and some Etsy merchants say the listing will raise the site’s profile. Still, critics say Etsy risks turning into another EBay that sells everything and anything.

“There’s a natural tension between scale and craft,” said Max Wolff, the chief economist at Manhattan Venture Partners, an investment firm focusing on late-stage private technology companies. “What investors want is scalability and profit margins and growth. What it means to be an artisan is no scale. They want intimacy.”

Etsy has been struggling with this paradox for a while.

Robert Kalin, who co-founded the company in 2005, set out to create a marketplace where small-time artisans could sell their wares to consumers tired of the cookie-cutter sameness of American retail. Etsy caught on and became the go-to place for one-of-a-kind products: cat-shaped sleep masks, bottle-top belts, barnwood coffee tables.Little Guy

Kalin was fond of telling people that it was all about the little guy and dismissed those who wondered if Etsy was scalable; he once told Inc. magazine that trying to maximize shareholder value was “ridiculous.”

Kalin left Etsy in 2011 and didn’t respond to a request for comment. His successors have made changes, the most controversial of which was allowing sellers to outsource some production to manufacturers. Depending on who you to talk to, these changes are no-brainer business stratagems or a sellout of everything Etsy stands for.

Three years ago, Rebecca Saylor ditched the corporate world and set up shop on Etsy. The former tech recruiter sells $50 owl pillows — with vests, bowties and hipster sunglasses — sewn at her San Franciso home. With her background in business, Saylor is no artsy idealist. But even she thinks Etsy has become too corporate.

After the company began allowing sellers to use manufacturers in October of 2013, Saylor says, her pillows became harder to find as similar products flooded the site. Moreover, she could no longer compete on price. In the months since, sales have fallen about 15 percent, she says.

“All of a sudden you’re competing with sellers that were on EBay or Amazon,” said Saylor, who is 40. “How do we make this Etsy situation work for us, and what do we need to do to develop and grow real businesses? It’s about real businesses — we’re not just crafters.”

Etsy, which declined to comment, hasn’t yet provided a prospectus that might shed light on the rationale for the listing, which will raise $300 million this quarter, according to people familiar with the matter, valuing the company at $2 billion.

On its blog, Etsy said the new policy was designed to help artisans — not harm them. The Brooklyn-based company noticed that some sellers were overstretched and wanted to grow their own businesses without violating Etsy’s standards for handmade. Outsourcing production, shipping and fulfillment has helped make some sellers a six-figure success, Etsy said.

Etsy also touts the benefits of merchants working with manufacturers. One who makes ceramics and home goods has outsourced production of tea towels to India. Another created superhero capes for children in 2007 and then turned to Massachusetts seamstresses to mass-produce them.

Etsy became a B Corporation in 2012, a certification encouraging the company to consider the impact of its decisions on employees, suppliers, consumers, the community, environment — and shareholders.

That hasn’t stopped Etsy from scaling up. The company charges sellers 20 cents per listing and a 3.5 percent commission. By increasing the pool of merchants on the site, Etsy generates more transactions and, ultimately, the faster growth and fatter profits Wall Street expects.

“Companies that don’t evolve don’t grow,” said Lise Buyer, who runs Class V Group LLC, an IPO advisory firm based in Portola Valley, California. “If a company has certain values and is founded as X and changes to Y, you may offend some of the X that got you to where you are in the first place.” Pandora Challenge

Online music streaming service Pandora Media Inc. faced a similar challenge as it readied an IPO in June 2011, said Wolff of Manhattan Venture Partners. Users at the time were switching to mobile, which required Pandora to start running more invasive ads that have been known to turn off listeners.

Nancy Healey, 29, has long been an Etsy fan. She designed much of her wedding using Etsy products, including frames, wall art and even her cake topper. All the same, she said, it’s increasingly difficult to tell if the merchandise is handmade or manufactured because products aren’t clearly labeled. The cake stand for her wedding was clearly mass produced, she said.

“You can almost buy anything on Etsy now,” said Healey, who lives in Jersey City, New Jersey, and works for a lingerie startup. “It’s becoming closer to an EBay.”

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