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Etsy Inc., a three-year-old Web site for buying and selling homemade goods, on Wednesday said it had raised $27 million in a funding round led by blue-chip venture capital firm Accel Partners to help support the company's expansion in the U.S. and overseas. Other participants in the investment were previous investors Union Square Ventures of New York and German media company Hubert Burda Media. In a statement posted by Etsy founder Rob Kalin on the company's corporate blog, Accel Partner Jim Breyer said the company has "a clarity of mission that can truly have a long-term impact on the way this world works." Kalin, who had previously spoken of his reluctance to accept venture capital, also went to lengths to defend this large Series D package, which dwarfs the $5 million that the company had raised in its prior three rounds combined. Referring to Breyer as "one of the elder wisemen" of the investing world, he outlined in detail unusual for a venture-backed startup exactly how the New York company plans to spend the money. Etsy will spend $5 million on hardware and other technology to support its growing user base and volume of stored images, and also allocate funds to improve customer service, enhance its purchasing systems, and expand support to site users operating in different currencies and who may not speak English. One key for Etsy will be how Breyer, who is taking a seat on the company's board, meshes with Kalin and the startup's other young managers. One of Silicon Valley's most highly respected and successful venture investors, Breyer is a board member at Facebook Inc., an Accel portfolio firm and like Esty a growing young Internet player headed by a young entrepreneur with little boardroom experience. If Etsy's rapid growth, far-flung geographic base and empowerment of mom-and-pop type sellers sounds a lot like eBay Inc., the similarity is not lost on Kalin, who played up the parallels in his funding announcement. "As Etsy grows, the responsibilities we have to our sellers grow," he wrote. "It is humbling to know that people's incomes depend on a service we provide, and inspiring to watch more and more people make a living from their Etsy shops." And just as the term "online flea market" did not do justice to the breadth of quality products available on eBay, describing Etsy as a site for homemade goods can erroneously make it sound like a place to buy macramé coasters and Christmas decorations made out of dried cranberries. A visit to the site reveals something else entirely: An assortment of hip, sophisticated and well-made items such as a briefcase made from buffalo hide and a $600 art deco style bookcase made from a coffin. Brad Bowers, founder of San Francisco Internet advisory firm BlackInc Ventures LLC, is not an investor in Etsy, but knows of the site through his gardener, who uses it to sell homemade sweaters. "Sites like Etsy are giving product creators a place to sell their goods to an interested audience, and are aggregating that audience to their site," Bowers said. "This is a much better model for producers who must otherwise create their own store, and spend to market and build a customer base, which is a much more expensive and challenging model than working with someone like Etsy." Despite such encomiums, Etsy faces significant challenges, not least of which is Kalin's inexperience as a CEO. The 27-year-old, who had no previous management experience before forming the startup in 2005, launched the site after sharing his plans for Etsy with Internet entrepreneurs Caterina Fake and Stewart Butterfield, founders of photo-sharing site Flickr (now owned by Yahoo! Inc.), who responded enthusiastically. Fake and other angel investors in June 2006 chipped in with $615,000 in seed funding. In the process, Kalin turned down funding offers from venture capital firms seeking a 20% stake in the company at a pre-money valuation of $3 million, as well as to recruit an experienced CEO. "I realized we didn't need that much money," Kalin said in a profile of Etsy published in The Deal magazine in November. "It ruffled some egos, but I think I made the right call." Etsy subsequently raised $1 million in late 2006 in a funding led by Union Square Ventures, a noted investor in early-stage digital media companies, and followed up with a $3.25 million round last July also led by the firm. Etsy today has 50 employees. It does not disclose its revenues, although last fall it was still burning cash, generating sales of roughly $300,000 a month and carrying expenses of $375,000. The company said it has 650,000 members with 120,000 sellers in 127 different countries.  Deal Video
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