A couple weeks ago, Thrasio declared bankruptcy. The largest Amazon aggregator, it raised over $3 billion of debt and equity at a valuation that was rumored to be approaching $10 billion. Blue chip investors led the financings, including people who typically go for businesses with proven models– Silver Lake, Oaktree, and Advent International – not exactly the Tiger and Softbank “the capital is the moat” types of investors.

A few years ago, Advent looked to be hitting home runs in consumer left and right – Olaplex, a hair care brand, went public and traded like a market-leading software company (over 25x sales!), Rao’s, the leading brand within the Sovos Brands food platform, was pushing up what grocery store consumers were willing to pay for pasta sauce while taking significant market share, and Lululemon was the peak of athleisure. And this was just the next one – with Advent on the cap table, my view of the odds of success went up.

For those who aren’t familiar, the Thrasio business model and investment thesis was pretty simple. Amazon created a marketplace where new products could come to market much easier than through traditional retail, and Amazon has a seemingly endless numbers of shoppers. Many entrepreneurs launched products on Amazon and created a nice business, but didn’t have the product development, logistics, or marketing know-how to really take those products to the next level. Aggregators like Thrasio would provide these entrepreneurs a life-changing outcome (at a relatively low EBITDA multiple, maybe 3-5x EBITDA) and then generate synergies by improving performance – keeping products in stock by improving forecasting and leveraging the aggregator balance to invest in more inventory, more thoughtful spend on marketing keywords, etc.

Thrasio wasn’t the only Amazon aggregator raising money at heady valuations, from blue-chip investors. Another Boston-area company, Perch, raised $775 million just 18 months post-founding, from VC’s (and yes, led by Softbank). Being in Boston, particularly as a consumer investor and former strategy consultant, it wasn’t hard to find first or second degree connections at some of these firms, and it was hard not to be a little jealous as press release after press release indicated unicorn-level fundraises for these platforms.

I also remember getting some probing questions about this thesis from my colleagues – why weren’t we thinking about this space? These companies were profitable! This didn’t seem like VC excess, and eventually these companies could self-fund their M&A. And think about the multiple accretion – these small brands could be bought for a few turns of EBITDA, and the aggregators were worth 5-10x revenue! And in a consumer products business, where margins are rarely above 15-20%, that implies a very heady EBITDA multiple for these aggregators. And there were endless brands to acquire as the thesis was early – unlike many of the other PE theses where programmatic M&A is a key to success. How could I not be spending time on something with such a clear playbook?

Suffice it to say, I didn’t really get the appeal of these aggregators as an investment, but I also don’t think I’m any better at investing than the many smart people at firms that were excited enough to put money in, let alone the smart people I know who were taking jobs at aggregators, so I tried to keep an open mind. But – I think the market has spoken on the strength of this business model. The post-mortems I’ve read on the Thrasio bankruptcy have focused on debt load, executive turnover, and the overall consumer products pullback post-COVID, but I think many of these are either outcomes or secondary issues. So what didn’t I like?

First – I’ll hit a commonly held risk, but a risk nonetheless – platform concentration. Simply put – if Amazon wanted to make an aggregator’s life difficult, they could. Whether it was introducing new fees, changing their algorithm for what items showed up higher on the page (a huge driver of conversion in e-commerce), preferencing their own private label items or national brands, there were a lot of scenarios I could invent that would lead to a very bad day in my office. And yes – many of these things were risks in all consumer products companies with Amazon exposure, including the ones I invested in. But the difference – those brands had a diverse set of channel partners, including traditional chain and independent retailers, their own e-commerce sites, and category-specific e-commerce retailers. So if Amazon decided to go nuclear on those brands, it’d still be a bad day, but probably survivable. I couldn’t wrap my head around how to underwrite this risk.

This leads me to my second, bigger point – the lack of real brand equity in anything these aggregators acquired. One of my fundamental beliefs in consumer investing is that consumers actually have to care about your product for it to be truly valuable. Recall Olaplex – there are many loyal consumers who swear by those products (well, at least until the hair loss issues started cropping up), who would switch retailers if Olaplex was no longer stocked at their beauty retailer of choice. This 1) lets Olaplex demand a premium price and 2) gives it significant leverage in any negotiation it has with its retail partners. Now – imagine being Thrasio, and trying to tell Amazon that they really need to listen to you, because otherwise, you’ll stop selling your Thirteen Chefs cutting boards and Bikeroo bike seats (side note – is this affiliate marketing? If so, this is gratis, Thrasio). Doesn’t quite hit the same, doesn’t it. Yes – aggregators were more likely to acquire brands with strong Amazon reviews (as they’re a factor in organic page rank, which means more likely to be seen early by consumers, and therefore more likely to be purchased). But not all customer feedback, even if positive, is of equal weight – just think about all the “5 star” reviews you’ve given, versus the things you’d actually recommend to a friend, remember what the brand was, buy again and again, etc. And back to the multiple arbitrage point – consumer brand platforms that owned things that people at least had heard of, if not actually cared about, traded for 10-15x EBITDA. With more diversified channel mix. Yes, these publicly traded companies were growing more slowly than the aggregators, because they weren’t buying dozens of brands a year. But the underlying brand performance might have been similar or better – it certainly wasn’t the focus when the aggregators’ valuations were being discussed!

I also think the name “aggregator” reveals the lack of business logic beyond multiple arbitrage in these platforms. I’ve heard operations at these companies described as “sticking your finger in the dike to prevent the flood, over and over”. No surprise – buying dozens of small companies quickly sounds like an integration nightmare, particularly when considering the overseas nature of the supply chain and the myriad of factories to be managed. In high-volume “programmatic” M&A theses, beyond fragmented markets with a lot of similar-looking acquisition targets, I like to see clear operational logic for consolidation – route density, purchasing synergies, ability to build a strong unified regional/national brand to drive the ability to gain marketing efficiency (if B2C) or better serve national corporate customers (if B2B), etc. Beyond freight, I struggle to find these synergies within the aggregators (at least in an easily capturable way – for example, narrowing the group of factories for a diversified 100 brand portfolio with limited category overlap sounds like a lot of work for little gain). And it’s hard to get big enough where Amazon actually cares what you think and wants to give you a break, because well, they’re Amazon.

So – with Thrasio’s bankruptcy it’s probably the definitive end of the Amazon aggregator craze, and the crazy valuations. Maybe paying 6-7x EBITDA for one isn’t a bad idea, that feels like about the right value for a portfolio of small consumer durable products with little brand value and extreme channel concentration. Amazon isn’t going away, maybe there’s a way to be more strategic in building a portfolio within a more narrow set of categories, or in consumables where brand loyalty matters more. And there are definitely companies that are better at optimizing the Amazon platform than others, and value to remaining in stock and having the balance sheet to do so. But I think life’s too short for me to spend much more time figuring this one out right now, especially with the rise of Temu as a new channel for undifferentiated imported goods.

There were many other investment theses in the ZIRP area I didn’t understand (pivoting to Web3 in the metaverse) but it was a little surprising to see one that some more mainstream consumer-savvy investors waded into. The lesson for me – if you don’t “get it” on the first or second try, stay away. There’s way more pain in investing from picking something that doesn’t work out (and I certainly have mine!) than the “anti-portfolio” of things that you passed on that turned out great. The “anti-portfolio” is the thing you talk about at parties to be faux-humble, the bad investment is an albatross that you carry in the office and outside it.

To end – apparently the name Thrasio comes from Greek mythology – the personified concept of boldness. It’s been awhile since high school English, but I remember a lot of boldness actually being arrogance and hubris in those Greek tragedies, and like Icarus flying too close to the sun, the Amazon aggregators are melting fast.