On Capitol Hill, Etsy's on a mission

WASHINGTON - Eight noisy, animated out-of-towners were squeezed into an elevator in a Senate office building recently when it stopped on the second floor. Waiting to get on was presidential candidate Sen. Lindsey Graham.

There was no room, and Graham, R-S.C., would have to wait.

As the door closed, one of the people packed into the elevator from online bazaar site Etsy whispered, "I think that was Lindsey Graham."

The group had missed the chance to deliver an elevator pitch. "At least we have his phone number," one team member said.

A group of Etsy executives and company vendors had descended upon Washington and embarked on a campaign to eliminate online sales taxes and exempt small businesses from import and export charges. The trendy online marketplace is on a mission to grow up. And on Capitol Hill, it learned that growing up starts with grip-and-grins before transitioning into policy debates.

This is Etsy's first time on its own in Washington, a trip that was months in the making. Company executives set up two days of marathon meetings with 20 members of Congress, including Rep. Darrell Issa, R-Calif., Sen. Ron Wyden, D-Ore., and power broker Sen. Mark Warner, D-Va.

But the members of the group left their power suits and ties at home, wearing instead craft eyeglass frames and quirky jewelry, snapping photos of the building and plaques in front of offices. One team member had knitted a pillow with the White House on it to celebrate the company's pilgrimage.

Employees from Facebook, Twitter, Amazon, eBay and Google have been walking these halls for years. Amazon.com spent $2.15 million lobbying Congress between April and July, according to the congressional lobbying database. eBay spent $358,000 on congressional lobbying.

But this is new for Brooklyn-based Etsy, which is making its first trip since its initial public offering in April. What began as a kitschy Internet arts fair in 2005 did $1.9 billion in sales last year, and opened on the Nasdaq with a $1.8 billion valuation.

"Billion with a B," said Althea Erickson, Etsy policy director, with a proud grin.

The stakes for Etsy are big. After its closely watched IPO, its stock is down nearly 40 percent. The money-losing company is trying to convince Wall Street that despite its crunchy image, it can turn a profit in a competitive e-commerce market.

Etsy also has faced charges that millions of items sold through its site violate trademarks or are mass-produced rather than handmade. The company has said it has Internet bots hunting for counterfeit items on its site.

"I think it's still the very early stages of what Etsy can become as a public company," said Tom Forte, senior vice president at Brean Capital who also studies e-commerce. "The jury is still out. It's not unusual for ane-commerce stock to have a big first day, and even by those standards, Etsy had a giant first day."

Finding friends on Capitol Hill could be critical to securing Etsy's place among other online giants. But first it must explain exactly what it does to lawmakers.

Etsy doesn't sell anything. It has no product, no goods, no services. Etsy has only a brand, industry analysts say, but one powerful enough to attract a wide audience and, in turn, more sellers.

"Etsy is many things to many people, but it has a brand flavor," said Sucharita Mulpuru-Kodali, vice president and e-commerce industry analyst at market research firm Forrester.

Etsy is fueled by more than 4,000 sellers who make items including keychains fashioned from recycled skateboards, handmade stationery and custom pillows. And all of those random goods typically associated with hobbyists rather than business owners have given the website a worldwide audience.

When Etsy was founded in 2005, selling on it was for small-time amateurs, analysts say. But then those amateurs became "makers," as Etsy likes to call them, or highly successful amateurs.

"It's a virtuous cycle," Erickson told Warner in a meeting last week. "With Etsy, the interesting thing is with more sellers we get more buyers. And more buyers beget more sellers."

And as the platform grows, its vendors - Etsy does not call them employees - consider themselves business owners rather than part-time hobbyists or sometime artists. At least that's what Etsy was trying to explain to Warner in a conference room down the hall from the senator's office.

"I think the perception is that we can't get a job or we're flaky or we're desperate," Jody Rice, who makes and sells cross-stitched pillows and canvasses on Etsy, told Warner as her colleagues nodded in approval. "That's not who we are. This is a passion. This is what we want to do."

"I want more innovation," Warner responded, leaning forward in his chair. "I want more entrepreneurship. I want people to have the flexibility that wasn't there 10 years ago.

"But as a policymaker, I'm concerned we're creating a class of people who aren't employees, and there's no safety net for them," he added.

And that's the challenge facing Etsy: how to convince lawmakers that micro-entrepreneurs are a legitimate economic constituency who warrant a mix of business autonomy and government protection.

If someone making a living selling crafts through Etsy gets sick or hurt, there goes their income. But they are a large enough sector of the economy that Congress should go to bat for them on trade issues, then get out of the way, Etsy officials argued in the meeting with Warner.

That's a combination that's tough to have both ways, Warner said. "This is going to be complicated," he said with a smile.

"Is there anything else you all want to tell me?" he asked as an aide poked her head in and gave a subtle wrap-it-up sign. It was around noon. The meeting had started at 11:30 a.m., with 10 minutes of introductions.

Etsy hadn't made its pitch for eliminating online sales tax or cutting import and export fees for small businesses. Papers ruffled as Etsy team members flipped through their notebooks. One Etsy team member looked at her watch and slumped in her chair.

"Well, we wanted to mention ... " started one vendor, before Warner politely interjected.

Time was up.

"It's in your literature, right?" Warner asked with a warm smile as heads bobbed around the table. "Well, I think I learned a lot."

Single file, the Etsy team members exchanged handshakes as they slid out of the meeting, their third of the day.

"That went really well," Erickson said.

The meeting's abrupt end did not deter the team's enthusiasm, which it took to the next appointment. Etsy was telling its story to lawmakers: We're a corporate player. We're sellers. We matter.