Nathan Sykes

March 23, 2021

Amazon Is A Horrible Private Equity Investment

And I don't mean the company itself. It's a publicly traded security and most likely outside of the purview of a lot of private equity investors. I mean Amazon merchants. The 'Fulfilled by Amazon' folks.

I did not know this until I started looking into it to write this piece - did you know that entire private equity firms exist exclusively for Amazon merchants? Like it's their circle of competence. Thrasio is the firm that caught my attention for me to start writing about this, and then I started looking at companies like FastLaneAcademy and Acquco. It's a fairly big industry, with lots of players.

But my question is, why?

Amazon merchants are locked in a cage, and are subjected to Jeff Bezos' every whim. They have no control over how their product is distributed online, or the customer experience as that product makes its way to the customer who just purchased it. All they can do is send their products into Amazon's fulfillment centers, optimize their Amazon page listing, and hope for the best. While you can theoretically set any price you'd like for your products, in reality, people who are shopping on Amazon are comparing your product and its price with the handy list of similar products being offered for cheaper that's being displayed right below yours. You need to price competitively to match, or you'll be driven out of the market.


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And if a product takes off? Don't expect it to happen for long - Amazon themselves will source your supplier, manufacture it for cheaper, and then suspend your account. An Amazon seller of tripods (who the linked WSJ article refers to as 'Mr. Thomas'), says that Amazon modeled his tripods for their AmazonBasics line of camera gear, and then removed his ability to sell on the platform. Amazon is armed with all of the selling and customer data that Mr. Thomas' tripods have garnered, and can use that data to sell more of their own brand.

This isn't just Amazon going after small vendors who can't defend themselves. The same WSJ article says they're going after Wayfair and Allbirds with the same breath. But it's these small Amazon merchants that are selling off to private equity, and I'm not exactly sure why.

Even with as large an operation as Thrasio, which has a self valuation of $1B, it's a drop in the bucket compared to what Amazon generates on a yearly basis. Assuming that Thrasio currently has good standing with Amazon, it's not hard to imagine how long it'll last with Amazon's "Day One" mentality. Eventually, that $1B in potential valuation will become low hanging fruit for The Everything Store, and they'll make the strategic decision to copy all of the merchants that Thrasio has as portfolio companies. It doesn't matter that they're private label - so are Allbirds and Wayfair, and Amazon's still going after them.

I'm not trying to knock Amazon. I know it's a business decision, and I actually sell stuff on Amazon myself (my book, Retire Before College, is available on Kindle, Audible, and through Amazon Fulfillment). But it's a secondary revenue stream. The main way that I sell my book is through my own website, https://getretirebeforecollege.com. Do you see the difference? The landing page is mine. The upsells are mine. I keep 100% of that money. There are no fees. I'm not scared of being booted off anything. I own it all - I'm not sharing with Amazon.

In my opinion, private equity dollars should not be going to make one of the most valuable companies in the world even richer. There's plenty of opportunity in micro private equity, lower middle market private equity, and even smaller companies with market caps of millions and billions of dollars! Just not Amazon. It doesn't make sense.

March 23 Update: I write these blog posts in advance, but Jay Acunzo just did a really good 90 second video on how Amazon Basics steals sales data from Amazon merchants. You can watch it by clicking here.