At a time when the financial sector is once again showing cracks in its walls, the growing failure of SPACS (Special Purpose Acquisition Company) is a key signal that every acquisition is not a worthy acquisition - and reminds us yet again that bigger is not necessarily better.As early as July 2022, the Wall Street Journal warned that “The SPAC boom brought a wave of companies to the public markets promising years of rapid growth and profits to investors. Two years since the boom began, many of these companies are already warning they may go bust.”The following nine months has shown this to be true.Last summer at least 25 companies that merged with SPACs between 2020 and 2021 had issued so-called going-concern warnings, according to research firm Audit Analytics.In the late days of zero interest rates, it was still easy to raise money - with most investors focused on finding young companies and getting them to an IPO as fast as possible. However most had business plans that were more hopeful than likely. When interest rates started to rise in mid-2022, investors’ appetites for funding high risk start ups began to wane. Suddenly loss making businesses with little hope of reaching profitability anytime soon were no longer appealing. “Year-to-date, five companies that went public via SPAC merger have filed for bankruptcy, matching the full-year total from 2022 with more than eight months left in the year." Renaissance Capital New Spending Limits“A growing list of de-SPACs have gone bankrupt, adding further pressure to the beleaguered blank check space. Year-to-date, five companies that went public via SPAC merger have filed for bankruptcy, matching the full-year total from 2022 with more than eight months left in the year,” according to Renaissance Capital. A de-SPAC transaction is one in which private companies go public by merging with special-purpose acquisition companies (SPACs), according to Netsuite.Three de-SPACs filed for bankruptcy in the first week of April, all of which completed their mergers in December 2021,” according to Renaissance Capital.Most of these SPAC mergers showed explosive growth projections which they ultimately failed to meet.Many of the companies acquired by SPACs have lasted less than a year before filing for bankruptcy. “Almost 100 companies that listed this way don’t have enough money on hand to fund their current level of spending over the next year." Bloomberg data “Almost 100 companies that listed this way don’t have enough money on hand to fund their current level of spending over the next year, data compiled by Bloomberg show. That’s on top of the 73 companies that currently trade below $1 a share, risking a potential delisting from major exchanges such as the New York Stock Exchange and Nasdaq. Since the baseline share price of most SPACs before a merger is $10, a price below $1 also means that an investor who bought into the shell company in anticipation of a deal and held on for the full ride lost at least 90%,” according to Bloomberg.The Roaring ‘20sIn the post Financial Crisis era, speculation was starting to become the norm with SPACs just being one more high risk financial instrument that managed to skirt risk management guidelines.Most were either totally speculative businesses or at best totally overvalued. The practice of grossly overpromising - and equally as spectacularly underdelivering came to define more than SPACs. Many DTC companies have faced the grim reality of having to operate in an environment where profits are a priority. As venture capital has become increasingly tight, a growing number of DTC brands, as well as SPACs are suddenly having to shift their business model from ‘growth at any cost’ to ‘bottomline or bust’.Analysts and investors no longer are looking at the top of the funnel. There’s a realization that there is not an endless supply of new customers out there. And that customer acquisition is very costly. This concern has been heightened by ongoing inflation in most major markets.Now the focus is on a company’s ability to retain customers (CRM), as well as its ability to show a profit. Other metrics such as average order value (AOV) and returning customers have become top priorities. Between October 2021–September 2022, DTC brand sales reached $3.5B in the U.S. e-commerce realm, up by +7.8% from a year ago. DTC brands selling on their own website saw sales during the period stagnate, up by just +1.3% on the previous year. Nielsen IQ Warning AheadA growing number of analysts are warning that cash flows are not coming in fast enough, and thus more bankruptcies are expected this year.The Canadian Venture Capital & Private Equity Association said that private equity investors are looking to make smaller deals in 2023 because of macroeconomic pressures, such as rising interest rates and tightening monetary policies.The association said that while there is still a lot of capital waiting to be deployed, investors are being a lot more cautious and are focusing on companies with very strong fundamentals.Between October 2021–September 2022, DTC brand sales reached $3.5B in the U.S. e-commerce realm, still up by +7.8% from the previous period, per Nielsen IQ. DTC brands selling on their own website saw sales during the period stagnate, up by just +1.3% on the previous year.Bad Brand or Bad Timing?Brands that a year ago were lauded as innovators are now perilously close to bankruptcy. However many are more victims of the times than of mismanagement.Last year investors were still pushing for faster topline growth, so brands leaned into that. With rising interest rates investors decided that betting on a company with no real prospects of turning a profit anytime soon was no longer attractive. And so they left the party - and left a growing number of brands in survival mode, scrambling to cut costs as fast as possible. And sending valuations down to more realistic levels.Last year China’s Shein was hailed as ‘unstoppable.’ Just last month the fast fashion e-commerce retailer set out to raise around $2 billion in a new funding round. However the brand cut its valuation to $64 billion in this fundraising, down by a third from a funding round a year ago. New Respect for Old School RetailThe shift back to more conservative financial metrics is part of a larger trend. While e-commerce remains a key channel for retail distribution, there’s growing respect for the role that wholesale plays in both customer acquisition and brand experience.Traditional retailers need the newness that DTC brands can bring. DTC brands need the foot traffic and thus discovery that physical retailers offer. This has led to new collaboration opportunities that will help elevate both brands and retailers.Facing a challenging economy, going it alone can be very tough. Are variety of partnerships and collaborations are likely to lead to creative solutions that will help the apparel ecosystem survive - and even thrive - in the coming years.