​Etsy sets aside IPO shares for its crafty vendors

Etsy proved that homespun and hand-crafted items could turn into a big business. Now, it's planning on sharing some of its IPO with the crafty people who made it a success.

With the IPO slated to price on Wednesday and start trading on Thursday, the initial stock sale will introduce many of Etsy's vendors into the rarified world of participating in initial stock sales. About 5 percent of the shares were set aside to sell to vendors and small investors, or the types of people who generally lack access to IPOs, according to The Wall Street Journal.

Investment bank Morgan Stanley set up a program that allowed vendors to buy between $100 to $2,500 of Etsy stock in advance of the IPO's pricing, with the bank waiving customary account fees for the program. Another 10 percent of shares were set aside for other small investors, according to the journal. The plan to reach out to smaller investors extends the folksy image that Etsy has carefully crafted during its 10-year history, with its goal of creating an "Etsy economy" that enables artists to support themselves through selling directly to consumers who value design over mass-produced merchandise.

With IPOs, "you're always told, 'You can't participate. You're not part of a financial syndicate. Go away, little person,'" Etsy vendor Jeni Sandberg told The Journal. She said she plans to buy the maximum allotment of $2,500 worth of stock. "This, I want to do."

Etsy didn't immediately return a request for comment.

The Brooklyn-based company is aiming to sell $267 million worth of shares, giving it a valuation of $1.78 billion. About 16.7 million shares will be sold between $14 to $16 per share, the company said last month.

That would give it a valuation that's higher than its e-commerce peers, with Bloomberg News noting that it would seek as much as 9.1 times its 2014 sales of $195.6 million. Parent-focused shopping site Zulily, by comparison, has a valuation of just 1.4 times its sales.

While it may be exciting for vendors to take a stake in a high-profile IPO, there are risks to the venture. Etsy is deep in the red, and because it's planning to spend on hiring and an expansion, that could lead to prolonged losses. Investors aren't as patient today with money-losing dot-coms as they were a decade ago, thanks to the poor track record of many would-be Internet giants (remember Pets.com?).

Some seller services may attract scrutiny, which could dampen volume growth, Wedbush analyst Gil Luria said in a statement about the upcoming IPO.

"We have identified several examples of sellers sourcing from Alibaba (contrary to Etsy guidelines and sometimes at markups exceeding 30,000%) and possible trademark infringement," Luria noted.

Luria, by the way, has started covering the stock with a "neutral" rating and a price target of $14, at the low end of the pricing range that Etsy has set.