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Sorry, Sydney: Square joins Eventbrite, Etsy and Stripe and chooses Melbourne as its Australian headquarters

5:09AM | Thursday, 21 May

Payments platform Square is the latest big-name international startup to launch an Australian headquarters in Melbourne thanks to the city’s reputation as a technology and cultural hub.   Launched by Twitter co-founder Jack Dorsey in 2010, Square closed a funding round of more than $150 million last year – bringing the startup’s valuation to around $US6 billion.   Australia will be the third country the startup has expanded to, following Canada and Japan.   The Melbourne headquarters will be based in the CBD and led by country manager Ben Pfisterer, who has a background in startups as well as Visa and National Australia Bank.   Pfisterer said in a statement Melbourne was the right home for the company’s Australian operations thanks to its small business community and growing tech scene.   “We are thrilled to open our local office in Australia, which continues to grow as a country renowned for a strong and diverse entrepreneurial small business community,” he said.   “Leveraging our knowledge of the local market, and the growth of Square around the world, we are looking forward to deploying an exciting product roadmap in the future that will help to make commerce easier for Australian small business owners.”   Large US startups like Stripe, Etsy and Eventbrite have all chosen Melbourne as the location for their Australian headquarters.   Scott Handsaker, co-founder of Startup Victoria, told StartupSmart when companies expand into Australia they want to make sure their staff will work well in the city they are sending them to, and Melbourne has a lot of drawcards.   In addition, he says the Melbourne startup scene is growing and therefore provides attractive hiring opportunities for US companies once they set up shop.   “A lot of people choose Melbourne and I think it’s because of the culture,” he says.   “It also has a density in terms of the ecosystem of startups that other cities don’t have. There’s also an ecosystem which is growing, I think, at a faster pace than other Australian cities… so that makes recruiting easier, tapping into existing networks easier and just makes it easier to do business.”   Handsaker adds that it doesn’t hurt that Melbourne is consistently ranked as one of the world’s most liveable cities.   “It’s got so much diversity in things going on such as sport, art and culture,” he says.   “A lot of these US companies, when they’re looking for expansion options, are thinking about how easy it’s going to be to get existing staff to move over there and get the culture right. So I think Melbourne comes up pretty well for that as well.”   Do you know more on this story or have a tip of your own? Raising capital or launching a startup? Let us know. Follow StartupSmart on Facebook, Twitter, and LinkedIn.

Four key insights from Etsy’s S-1 filing

3:17AM | Wednesday, 18 March

A great way to learn about a startup that has grown up is to review its disclosure document at IPO (S-1 filing). These documents can be hundreds of pages long but offer fascinating insights to those willing to dig into the details.   Some say the best teachers in chess start by teaching the end game first. By removing the complexity of all pieces on the board and stripping the game back to opposing kings and a pawn, a student can understand each layer of complexity piece by piece. And slowly wind the game back to full complexity (the opening) where it is unclear what a player should focus on to succeed.   Studying a startup at the end of its private life, where the complexity of its parts is reduced to those that scaled successfully, is in my mind similar to learning the end game to better inform your opening decisions.   There are always many moving parts to a business model, but typically there are three to five levers that drive the model (and its defensibility). At the IPO of a company, it’s easy to anchor on just valuation but it’s more useful to focus on how it will throw off cash and how defensible its earnings stream is. In the long run, competition will always drive down returns on equity unless they are defensible.   It can also be interesting to answer questions that all startups have when building something from scratch. How much should I spend on marketing? How much site traffic should be paid for and what does revenue growth typically look like?   Etsy recently released its S-1 filing ahead of its IPO. The company is a great example of a wonderful marketplace business that is defensible due particularly to its high entry barriers and the presence of network effects.   For me, there were three fascinating insights that can be found within Etsy’s S-1.   1. Organic marketing trumps paid channels   The majority of Etsy’s gross market sales (GMS) are generated from an organic marketing channel. That is, in calendar year (CY) 2014, 93% of site traffic came from direct, organic and email traffic sources (6% from email), with only 7% from paid traffic. This was even after Etsy ramped marketing spend ahead of its IPO.   During the period CY2011 to CY2013, paid traffic made up only 2-6% of all site traffic. This is mirrored by its marketing spend as a percent of GMS which ranged from 1.2-2.0% during the period CY2012 to CY2014.   To think of this another way, for every $100 of sales that occurred on Etsy’s platform, the company spent $1-2 on marketing. Some may say that this is still somewhat high given Etsy’s take rate is only approximately 10%, but if you think of Etsy’s GMS as equivalent to e-commerce revenue, it is very low.     It’s easy to believe that success awaits if a large amount of capital can be raised for marketing dollars. But the most successful startups are those that can build a large organic channel without the heavy reliance on paid marketing.   More and more we find paid marketing channels get arbitraged away by competitors. And every KPI is better for customers that come from an organic channel (conversion rates, repeat rates, referral rates) versus customers that have had to be persuaded to purchase a product via a paid marketing channel (usually via some short-term incentive – such as coupon marketing).   2. Repeat customers, steady purchase rate   The underlying strength of a large organic channel is evidenced by Etsy’s repeat purchase rate – the second insight into Etsy. That is, the majority of Etsy’s GMS is generated from repeat purchases. Incredibly, in 2014, 78% of purchases were from repeat customers.   If a business is driven by paid marketing, this KPI would typically by flipped, in that 78% of customers in a given year would be first time customers.   This is a good example of the insight you can gain by unbundling the main KPI of a business. In Etsy’s case this would be GMS. Unbundling Etsy’s CY2014 GMS number, it is built up by a large organic marketing channel (93% organic traffic) and a large retained customer base (78% repeat customers). In many cases a large growing GMS is built up the opposite way – a large paid marketing channel generating many new customers but a very low retained customer base. Both show very high growth but only one is defensible.   3. Lower take rates, less risk of margin compression   Another insight is Etsy’s small take rate – the revenue Etsy generates from its marketplace. Etsy’s revenue as a percent of GMS has been between 8.3-10.1% since CY2012. This is very low when compared to other marketplaces that can have take rates up to 20% or 30%. There seems to be a trend towards lower take rates in marketplaces. This lower take rate from the beginning suggests that there is less risk of margin compression making Etsy’s revenue line of higher quality.   4. Establishing valuation   The final insight can be found within the three data points on Etsy’s valuation in the late stage private market. The Etsy S-1 filing provides details on: a common stock sale in April-14 to Tiger Global; a preferred stock round in May-12 to Index, Accel and USV; and a board valuation of its shares as part of determining the fair market value of two million in options issued in Jan-15.   This shows that Etsy has been valued pre-IPO at a revenue multiple of between 5.1-7.6x.   By removing the complexity of Etsy’s early days, we can see the value of building a large organic channel and a large retained customer base. We also gain valuable insight into where broader marketplace take rates may end up, and how a marketplace like Etsy currently trades in the late stage private market.   Paul Bennetts is the investment manager at AirTree Ventures and a panellist at the 2015 StartupSmart Awards. Buy tickets to the awards.   This article originally appeared on AirTree Ventures’ blog. Follow StartupSmart on Facebook, Twitter, and LinkedIn.

Eventbrite joins a growing list of US startups heading Down Under

5:12AM | Thursday, 29 May

In what is becoming a familiar story for larger US startups entering the Australian market, Eventbrite officially opened its doors here last month after noticing huge organic growth without any marketing and publicity.   It joins a growing list of successful Silicon Valley startups that have launched or have a presence here, including Twitter, Stripe, Etsy, Elance-oDesk and Uber. A number of other companies are rumoured to be opening soon, such as Square.   They all tell a similar story; Australia emerged as a key market organically.   Elsita Meyer-Brandt, new market expansion and international marketing for Eventbrite, says that Australia accounts for 4% of its business, selling over 3 million tickets and hosting 75,000 events. Half were in the past year alone.   Eventbrite users have been able to use a localised version of the service in Australian dollars since 2011, and many still used the platform before then.   Meyer-Brandt says the company settled on Australia as one of its first international offices (it has headquarters in London and Dublin as well) both because of the growth here itself and the potential in the Asia-Pacific region.   Eventbrite originated as a self-service ticketing system, which had a focus on smaller tech meetups in its early days, but the company has since grown and morphed into a “multi-category” events e-commerce platform servicing larger events such as conferences, festivals and endurance sports competitions.   It was the growth in this area, which has influenced its local strategy.   “With these bigger events we really need account managers on the ground to be here and help facilitate things,” Meyer-Brandt says.   “We found that a lot of people were asking for features and help that was already available to them. This is just about being here, on the ground, and making them aware of all that we have to offer.”   The local headquarters will initially be largely marketing, business development and sales focused, but Meyer-Brandt did not rule out bringing on local engineers in the future.   One of the company’s biggest challenges to date though has been attracting the right staff, with Eventbrite legendry for its focus on developing and maintaining its emphasis on company culture (company employees are called “Britelings”).   “Culture is very important to us, so we have come across people who have the right skills, but aren’t the right fit,” Meyer-Brandt says.   She is confident though that the right candidates will come along.   Currently, it has a team of three staff, two in sales and one in marketing, and acquired the customer base of a local ticketing company, GreenTix.   Founded in 2003, GreenTix processed over 700,000 tickets in Australia to notable festivals including Rainbow Serpent, Equitana, and more.    As for the decision to set up in Melbourne over Sydney, Meyer-Brandt says it was a tough one to make.   “Usually when we’ve looked at regional headquarters there’s been an obvious place for us to set up, obviously London for the UK, and Dublin for Ireland,” she says.   “But when we looked at the stats we found that our customer base was very evenly split between Melbourne and Sydney.”   She says they eventually settled on Melbourne because of its strong emphasis on festivals and other cultural events.   Here are the links to the jobs that are open in the Australian office at the moment:   Country Marketing Manager Business Development Associate

Etsy country director visits Oz – five insights from the crafty company

2:36AM | Wednesday, 20 February

The country director of US-based eCommerce website Etsy has offered some insight into the company, and has outlined some key tips for online start-ups, as part of her Australian visit.   Etsy is an online marketplace where people buy and sell handmade or vintage items. It was conceived by Rob Kalin in early 2005.   Kalin – a painter, carpenter and photographer – set up the site after realising there was no viable marketplace to exhibit and sell his creations online.   Today, Etsy has 20 million members and attracts 42 million unique visitors every month. More than 75% of the businesses on Etsy are owned by women, and merchandise sales last year reached $895 million.   Nicole Vanderbilt, who is currently in Australia, is Etsy’s country director for Australia, New Zealand, the United Kingdom and Canada.   Vanderbilt spoke to StartupSmart about the ever-changing eCommerce landscape, and what it means for start-ups.   1. Make your site browser-friendly   Unlike a lot of eCommerce sites – which appeal to customers who know exactly what they want and for what price – Vanderbilt is quick to point out Etsy is built on a community of browsers.   “At first eCommerce was about getting everything on the web. Now it’s on the web the question is, how do you help people find it?” she says.   “On Etsy, they’re not necessarily things you know you want in advance – a lot of browsing goes on. There are changes we’ve made that reflect that.   “From the home page, we’ve highlighted the browser experience… You can go into a category like weddings, mobile accessories or jewellery [rather than using the search function].”   2. Acknowledge Australians’ appetite for overseas goods   “Etsy has taken a very global approach right from the get-go. Our business is very conducive to sellers getting demands from all over the world,” Vanderbilt says. “We did transactions in 200 countries last year. Some of our biggest markets were big English-speaking markets. Australia is in our top five.   “The distinction around the Australian market is Australian buyers are willing to buy from outside of Australia.”   3. Don’t spread yourself too thin   “I think in the beginning, it’s so much about getting your value proposition right. Spreading yourself too thin is a bit dangerous,” she says.   “Focus on making what you love. It’s not going to be an easy road so make sure you love what you’re doing. And get feedback on it.   “The great thing about Etsy is you can start small, test, iterate and grow from there. That’s what we advise a lot of sellers to do.”   There’s plenty of time to expand your presence – either online or offline – once you’ve earned a name for yourself, Vanderbilt says.   “Over time, we do see our sellers end up selling in boutiques on a wholesale basis,” she says.   4. Look beyond the transaction   “I think [eCommerce has] become a lot more social… The notion of eCommerce as a cold, transactional way of shopping [is less prevalent],” Vanderbilt says.   “The internet has gotten better at a lot of different things – it has become a source of inspiration.”   5. Keep the conversation going   While it’s crucial to spark conversations with your customers, Vanderbilt also highlights the importance of encouraging communication between sellers.   “We have a huge amount of educational material. The seller handbook is, as you can imagine, an accumulated and edited bunch of tips and tricks to become more successful on Etsy,” she says.   “We also encourage sellers to help each other. One way we do this is with teams – sellers are organised into small groups… You can go into those teams and get all kinds of help.”

eBay follows Etsy’s lead with new Melbourne base

6:34AM | Wednesday, 6 June

eBay Australia has followed in the footsteps of online retailer Etsy, establishing a physical presence in Melbourne, in a bid to further build its seller base.

Etsy opens Melbourne showroom – five tips from an Etsy expert

5:32AM | Friday, 18 May

A local Etsy expert has offered her key tips to start-ups looking to use Etsy as a selling platform, after it was revealed the Brooklyn-based online retailer is opening a showroom in Melbourne.

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