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Etsy IPO will show if do-gooders can make money

Etsy
Mark Ovaska | Bloomberg | Getty Images

Etsy is on file to go public, so get ready to start hearing more about B Corps.

In May 2012, Brooklyn, New York-based Etsy wrote in a blog post it had become a certified B Corporation, "a new kind of company that uses the power of business to solve social and environmental problems." The certification is comparable to Fair Trade certification for a coffee maker or LEED recognition for a green building.

Founded in 2005, Etsy has carved out a successful online marketplace that connects artists and crafters with buyers around the globe. The company published its IPO prospectus on Wednesday, and announced preliminary plans to raise up to $100 million. And the term B Corporation shows up five times in the filing.

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According to B Lab, the nonprofit organization that provides B Corps certifications, there are 1,223 such companies in 38 countries. Some of the better-known B Corps brands include Ben & Jerry's, Patagonia, Kickstarter and eyeglass maker Warby Parker. But scanning the list, there aren't many publicly traded names that jump out. (Ben & Jerry's is owned by Unilever, which is public and not a B Corps.)

B Lab scores companies based on a number of factors, including the sharing of financial information with employees, contributions to the local community through civic engagement and volunteerism, employee diversity and energy efficiency.

Certified B Corps companies are scored between 80 and 200. Etsy most recently scored a 105, higher than Ben & Jerry's at 101, but trailing Patagonia's 116.

But while volunteerism and energy savings are noble goals, public companies have been slow to adopt such standards, in large part because there's no financial advantage to attaining B Corps status.

Rally Software, which went public in 2013, is among the exceptions. The company says on its website that B Corporations "believe it's time to expand how success is measured in the business world, that for-profit businesses should be a force for good and who are collectively striving for 'shared and durable prosperity.'"

For Etsy, B Corps status remains a priority. "Our reputation could be harmed if we lose our status as a certified B Corporation, whether by our choice or by our failure to meet B Lab's certification requirements," the company said.

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Launched in Brooklyn a decade ago, Etsy has 1.4 million active sellers and 19.8 million active buyers in its network. Revenue in 2014 climbed 56 percent to $195.6 million. Marketing costs more than doubled, and the company's net loss widened to $15.2 million from less than $1 million in 2013.

The larger question is how B Corps status will play out as Etsy faces growing competition from online marketplace heavyweights including Amazon.com, eBay and Alibaba. Expect such questions to come up during Etsy's roadshow.