Welcome to the 131st Pari Passu newsletter.

A few weeks ago, we saw the dangers that over-reliance on brick-and-mortar stores posed to retail brands like Tuesday Morning. With changing consumer preferences in both types of products and shopping experience, many buyers turned to e-commerce during the pandemic. Amazon’s profit alone surpassed 200% following this shift to online shopping [15]. 

Today, we will examine one of Amazon’s most (initially) successful companies, Thrasio, and how the company’s rapid expansion via roll-ups, over-dependence on Amazon as a platform, and reliance on short-term solutions led to the aggregator’s downfall in 2024. We will use Thrasio as an opportunity to learn about challenges faced specifically by the e-commerce industry, and how venture-scale businesses can depress their runway despite aggressive funding. 

Thrasio Company Overview

Founded in 2018 by Carlos Cashman and Joshua Silberstein, Thrasio is a U.S.-based consumer goods company and a pioneer of the Amazon aggregator model. The company was among the first to execute a specialized e-commerce roll-up strategy, rapidly acquiring third-party Amazon brands and scaling them through centralized operations. Thrasio quickly became the leader of a new wave of “Thrasio-style” startups that aim to replicate its business model across different online marketplaces [2]. 

At its peak, Thrasio’s product portfolio was one of the most widely distributed on Amazon, spanning all categories, including everything from home and kitchen to personal care and fitness. Thrasio’s operational footprint extended to international markets as well, with the company employing around 700 employees in the US and China, supported by a global network of independent contractors [1].

Thrasio’s Aggregator Business Model

Amazon aggregators identify and acquire profitable third-party brands, especially those using the Fulfillment by Amazon (FBA) model, and consolidate them to sell them under a unified operational platform on Amazon. Companies like Thrasio achieve this in four main steps [2]:

1. Identify profitable brands: Amazon aggregators seek brands with strong fundamentals, efficient supply chains, and growth potential; for Thrasio, this looks like an annual revenue of at least $1mm. Profitable and scalable brands are categorized by loyal customer bases and high rankings on Amazon as well. Brands that use FBA are particularly attractive because they allow the seller to outsource fulfillment services (storage, shipping, and customer service) to Amazon; first, the seller ships inventory to Amazon warehouses. Amazon then stores, packs, and ships the products. Finally, Amazon handles returns and customer service. As a result, brands that use FBA are generally more scalable and profitable in the early to mid growth stages.

2. Acquire the brand: Once a brand passes the first due diligence stage, the aggregator presents an acquisition offer. This typically involves signing a Letter of Intent (LOI) outlining key deal terms, conducting a thorough review of financials and operations, and completing a contractual closing phase where legal agreements are finalized and ownership of the brand is formally transferred.

3. Scale the brand: After the brand is acquired, aggregators target accelerated growth by enhancing product pages and images, fine-tuning key words to improve visibility, and managing advertising / marketing campaigns to increase reach and conversion rates. Pricing strategies are also refined to stay competitive; high-potential brands are introduced to new sales channels and international markets. In many cases, the original founder is brought on as an advisor to ensure a seamless transition and provide insights. 

4. Create synergies: Finally, aggregators create synergies by serving as a centralized platform for backend operations such as logistics, warehousing, customer service, and marketing. To clarify, warehousing, shipping, and customer services are only provided by Amazon if the brand is FBA. If the brand is not FBA, the seller (Thrasio) is responsible for these services. Thrasio, like many other aggregators, does not exclusively acquire FBA brands. However, companies prefer FBA brands because they can rely on Amazon to handle fulfillment services rather than providing them through their own platform. Size also matters; for example, Thrasio is able to negotiate better deals with suppliers due to its size of over 500 Amazon businesses. This consolidation reduces per-unit costs, allowing brands to achieve economies of scale and operate more efficiently than they could independently. 

Amazon aggregators are a specific type of rollup, which we discussed in our Air Pros writeup. Aggregators like Thrasio are digitally native, vertically integrated rollups designed specifically to scale e-commerce sales. Amazon aggregators differ from traditional rollups in a few ways: Amazon aggregators target e-commerce brands, are highly dependent on Amazon as a platform, and have a rapid pace of acquisition, whereas traditional rollups are often service businesses (HVAC and healthcare are two prominent examples), are independent of third-party platforms, and usually require a slower acquisition pace due to their offline nature [2]. 

Thrasio’s success was largely driven by its first-mover advantage, but the company’s explosive growth was maintained by its scalable business model and meticulous due diligence process. By being one of the first Amazon aggregators to launch before its business model became saturated, Thrasio was able to capture many of its high-performing FBA brands early, before its competitors. On top of that, Thrasio’s due diligence process, which included over 500 checkpoints on a brand’s supply chain, marketing, and operations, ensured that all acquired brands were well-positioned for growth [2]. 

In addition to Amazon, Thrasio generated revenue through wholesale partnerships with major retailers like Walmart and Nordstrom, and sought to diversify its e-commerce footprint by cross-listing products on alternative platforms. These non-Amazon channels contributed approximately $30mm in revenue in 2023, which the company describes as a “small percentage of net sales” (2023 revenue is undisclosed) [1]. 

Corporate History 

Thrasio was founded in 2018 with the mission of acquiring and consolidating successful Amazon brands.  At its peak, Thrasio managed a portfolio of over 200 brands across multiple industries [1]. As of February 2024, Thrasio had spent over $500mm acquiring these brands, highlighting the scale of the company’s roll-up strategy. Below is a timeline of major funding and acquisition events: 

2018: Thrasio began its journey of rapid acquisitions in November 2018, when the brand acquired Angry Orange for $1.4mm [16]. Angry Orange is a pet odor eliminator brand, and this acquisition would become one of the company’s earliest and most successful acquisitions; Angry Orange’s flagship odor-removing product became the best seller in its Amazon category. From our research, Angry Orange was the only confirmed acquisition in 2018, bringing in around $2.5mm by the end of 2018 [3]. 

2019: Following its successful acquisition of Angry Orange in 2018, Thrasio raised $6.5mm in seed funding in April 2019 at a valuation of around $22mm [6] [19]. Over the course of 2019, Thrasio took advantage of the rapidly growing e-commerce space and acquired many more Amazon-native brands. By November 2019, the company had raised $20mm in Series A funding led by Peak6 and Upper90 (both investment firms that focus on tech-driven startups), reflecting a 9x valuation increase between 2018 and 2019. By the end of 2019, several of Thrasio’s acquired brands, including Beast Gear (a UK-based fitness brand), TrailBuddy (an outdoor gear brand specializing in hiking poles), and Sky Solutions (producer of an anti-fatigue floor mat designed to alleviate discomfort from prolonged standing), had joined Angry Orange as bestsellers in their respective Amazon categories [5].

2020: While we could not find the exact revenue during 2018 – 2020, we know from a Thrasio news report that Thrasio’s revenue had, on average, doubled every 73 days during this period.  The COVID pandemic led to an unprecedented surge in e-commerce as consumers shifted to online shopping, which only propelled the company’s growth even more [1]. In April 2020, the company raised $75mm in Series B preferred equity and secured an additional $35mm in debt, bringing in $100mm in fresh capital. This funding round pushed Thrasio’s valuation to over $700 million, a 32x increase from just one year earlier. Around the same time, the company had crossed $300mm in pro forma revenue, acquired and integrated over 40 Amazon-native brands, and become one of the top 25 sellers on Amazon with more than 6,000 products in its portfolio. Building on the company’s funding momentum, Thrasio closed a $260 million Series C round in July 2020, led by global private equity firm Advent International. Just months after its April raise, Thrasio’s valuation surpassed $1 billion, making it the fastest profitable U.S. startup to reach unicorn status [6] [7]. By the end of 2020, the company had generated over $500mm in revenue and over $100mm in EBITDA [9]. 

2021: In a major funding milestone in February 2021, Thrasio secured $750 million in Series C equity financing backed by Oaktree (leading global alternative asset investment firm) and Advent, marking the largest single investment to date in the Amazon brand aggregator space. This raise came shortly after a separate $500mm debt deal, pushing the company’s valuation to over $6bn [9]. In October 2021, Thrasio raised another $1bn in Series D financing from Silver Lake (one of the top technology investment firms), bringing total funding to over $3.4bn. 2021 also marked the company’s largest acquisitions with a combined value of over $100mm, including SafeRest (mattress protector brand), Wise Owl Outfitters (camping equipment retailer), and Danjor Linens (premium bedding at affordable prices). With these new additions, the company’s portfolio of brands grew to 150, and Thrasio began targeting new brands with annual revenues exceeding $3mm [10]. Thrasio’s growing acquisition pace had the company acquiring two to three brands per week, generating over $1bn of annual revenue by the end of 2021 [9] [11].  

Capital Structure 

Thrasio’s growth was fueled not only by equity financing but also by a heavy debt load that would later play a central role in the company’s distress. While Thrasio’s exact 2021 EBITDA is not disclosed, we will assume a 10% EBITDA margin on $1bn of revenue, implying EBITDA of approximately $100mm. We assume a 10% EBITDA margin because it balances the company’s 20% EBITDA margin in 2020 ($100mm EBITDA / $500mm revenue) with significantly higher costs incurred in 2021 due to COVID-related challenges that we will explore in detail below.  Thrasio entered both of its first lien facilities in late 2020, so by mid-2021, the company’s implied leverage ratio stood at roughly 8.6x ($855.2mm / $100mm). This is already a high leverage ratio, and mounting operational challenges along with a negative EBITDA report in 2022 suggested that the company’s leverage profile was continuing to get worse [1]. Below is Thrasio’s capital structure as of its February 2024 filing date:

Thrasio’s Revolving Credit Facility (RCF) is held by the Royal Bank of Canada and JPMorgan Chase Bank, N.A. Thrasio’s Term Loan Facility is made up of three tranches: the $250mm Initial Term Tranche, $165mm Initial Delayed Draw Tranche, and an unspecified amount for additional borrowing allowed by the Incremental Delayed Draw Tranche. All three tranches carry a SOFR + 7% interest rate and are secured by a first-priority lien on the company’s collateral [4]. 

The company also has a complex equity structure composed of six classes of preferred stock. Preferred stock is a class of equity that gives holders priority over common shareholders in receiving dividends and liquidation proceeds, often with fixed returns and limited or no voting rights. The difference between preferred stock and common stock is that preferred stock gives investors priority in dividends and liquidation but no voting rights, while common stock carries voting rights and greater upside but ranks last in payout. Preferred stock can be structured as convertible preferred stock, where holders can convert shares into common stock when certain triggering events occur. 

Thrasio’s preferred shares were held by major private equity firms and venture backers, each with varying rights and seniority. Oaktree held 500,000 shares of Series X Redeemable Preferred Stock, which accrues 14.6% interest annually and is not convertible to common stock. Silver Lake held about 50mm shares of Series D Preferred, which are convertible and have voting rights via proxy; this just means that Silver Lake does not vote the shares directly, but instead appoints someone else to vote on their behalf. Advent controlled the majority of the 95mm Series C shares, which include three subclasses and are senior to Series B, A, and Seed shares. Peak6 and Upper90 jointly held the remaining preferred tranches: Series B (around 20mm shares), Series A (around 20mm), and Series Seed (around 60mm), all of which are convertible. These tranches fall in descending order of payment priority, meaning that in the event of a liquidation, holders of more senior tranches (like Series X) are paid before those in junior tranches (like Series A) [4].

Events Leading to Chapter 11

Thrasio’s business model was built on the expectation of a gradual, long-term shift toward online retail through small e-commerce brands. However, the COVID pandemic rapidly accelerated this shift, with online aggregators like Thrasio experiencing exponential growth as consumer demand on Amazon ballooned. Recall that earlier, we saw that revenues doubled, on average, every 73 days starting from late 2018 and ending at $1bn in 2021. To address increased consumer demand, Thrasio took on a few initiatives throughout 2020 – 2021 that quickly became unsustainable by 2022 [4]. 

Excess Inventory 

In an attempt to cater to the surge in demand, Thrasio and other online brands began over-stocking their warehouses with excess inventory. The global supply chain was unprepared for this sudden uptick in orders; stockouts and shipping delays became widespread as out-of-stock messages increased by 235% worldwide since before the pandemic. Even as global supply chains remained disrupted throughout 2020 and 2021, Thrasio and other sellers responded by aggressively purchasing inventory in a defensive move to protect their market position and stay in stock. This triggered a cycle of over-ordering that led to logistical bottlenecks, which worsened stock shortages and prompted even more inventory buildup [4]. 

Thrasio’s increased consumer demand was worsened by its near-solitary reliance on Amazon for sales. Since Amazon penalizes sellers who are frequently out of stock by limiting visibility in search results and ads, Thrasio responded by aggressively stockpiling goods after initially being hurt by inventory shortages. To maintain product availability, the company often agreed to above-market purchasing terms (buying inventory at prices above pre-pandemic prices), a move that helped in the short term but later proved costly. By the end of 2022, Thrasio had around $425mm of excess inventory. Not only was the inventory itself costly, but the warehouses needed to store the excess inventory became burdensome as well. Thrasio leased over 200 warehouses to store excess products, and managing and transporting this inventory strained the company’s logistical resources [4]. 

Operational Breakdown

The surge in demand following the pandemic necessitated more robust infrastructure that Thrasio could not build internally in time to support its rapidly expanding brand portfolio. As a short-term solution, the company relied on more than forty (compared to the industry standard of two or three) third-party logistics (3PL) providers and engaged with over 4,000 external vendors. Rather than developing long-term, streamlined systems to accommodate the post-pandemic surge, however, Thrasio continued to rely on this highly fragmented approach that led to complex overhead and vendor management that was not adaptable to growth as it normalized post-pandemic [4]. 

At the same time, Thrasio significantly ramped up its workforce based on overly optimistic pandemic projections. In April 2020, the company had around 200 domestic employees [17]. In the US, Thrasio added around 240 employees by the end of 2020 and another 900 in 2021. As consumer demand receded and acquisition pace slowed throughout 2021 and 2022, much of this workforce remained underutilized. The result was a bloated cost structure and operational inefficiencies that eroded margins and strained internal resources throughout this period. These decisions ultimately weakened the company’s ability to operate efficiently in a shifting market environment [4].

According to Thrasio’s First Day Declaration, Thrasio’s overhiring, excess inventory, and rising logistics costs resulted in “annual net cash flows used in operating activities [totaling] $680 million for 2021 [and] $419 million for 2022.” The company’s 13-week cash flow model tells us that these cash flows include COGS and SG&A, supply chain-related expenses, and other opex [4].

Financial Trajectory

Before we look at how Thrasio attempted to fix its operational spend, let’s pause for a moment to understand how all of the company’s expenses and interest payments affected cash flow. 

Though Thrasio is private, we can make some assumptions with the public data we do have access to in order to get a better sense of the company’s liquidity profile toward the end of 2022: 

We know that in 2021, the company generated around $1bn in revenue and had net operating cash outflows of $680mm. We will assume that fixed expenses totaled $250mm, leaving the remaining $430mm as variable expenses; from this, we assume variable expenses were around 43% of revenue ($430mm variable expenses / $1bn revenue).

In 2022, we also know that net operating cash outflows declined to $420mm. We will assume fixed costs stayed the same at $250mm, as fixed costs cannot be easily changed within a year, regardless of changes in revenue or operations. Subtracting fixed costs from total operating disbursements gives us a total of $170mm in variable costs. Assuming variable expenses are 40% of revenue, we can back into 2022 revenue: if $170 is 40% of revenue, then implied revenue would be $395mm. 

Using this implied revenue and knowing that total operating disbursements (covering both COGS and opex) totaled $420mm in 2022, we calculate operating income (EBIT) of negative $25mm ($395mm implied revenue – $420mm operating cash outflows). Thrasio ramped up debt gradually and had around $700mm debt outstanding in 2022. With a SOFR + 7% interest rate on the term loan, we will apply a 12% interest rate to get annual interest payments of $84mm, resulting in a pre-tax loss of around negative $110mm. As no taxes would be due on negative pre-tax income, we apply no tax impact. We then subtract 5% of revenue for capex and another 5% of revenue ($40mm total) to account for working capital needs, which, while declining, likely remained non-negligible given ongoing bottlenecks. This results in an estimated free cash flow of around negative $150mm for 2022. 

Now we can look at leverage. Using our implied EBIT of negative $25mm and assuming D&A equals capex ($20mm), we arrive at an implied EBITDA of negative $5mm. This negative EBITDA is supported by Thrasio’s Disclosure Statement: 

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