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Private equity firm Bain Capital today completed its $500 million purchase of online diamond and jewelry retailer Blue Nile, which had been one of the first e-commerce companies to go public after the dotcom bust. Ryan Cotton, a Bain managing director who helped lead the buyout, spoke with Axios about the deal:

Why Bain is buying Blue Nile

"From a thematic perspective, if you look at where consumers are moving to and want to shop, there are very few businesses more closely aligned with those trends than Blue Nile. Personalization and customization on an endless aisle with lower prices, more transparency and deeper value than bricks-and-mortar retailers. It's really the same model as a Warby Parker or Harrys or Dollar Shave Club, in that it's cutting out the markups related to bricks-and-mortar infrastructure and supply chain."

A big part of Bain's investment thesis is procurement-related savings. How do you accomplish that?

"It's really a function of working closer with our suppliers to get the right product on the site with higher velocity. There is some model of efficiency to being able to list any stone you have at any price you want but, by having a merchant model that understands our customer's interests, we can go to a supplier and guarantee them volume at a good price. Suppliers are trying to maximize their supply of capital, and then buying diamonds out of the mines we'll tell them that we'll immediately take a third of that sighting upfront. It helps them yield manage the rest more effectively, and we get a pre-committed price point."

Is Blue Nile a victim of its own early success in convincing people to buy diamonds online, with revenue slowing because of new competition?

"I think it's less a victim of its own success and more of an early IPO. Fast-growth Internet retailing companies don't make for great public companies unless you can convince the markets not to look at profitability. Amazon has done it, but that's proven to be an exception. Blue Nile kept having new customers come online, but couldn't handle the quarterly earnings volatility that would have come with investing in things like marketing and improving the user interface. Shareholders kept saying that consistency was most important to them, so Blue Nile was trapped in a public box, while a lot of its competitors weren't. Now we get to make investments with a longer time horizon, get sourcing right and experiment with some web-rooms and other omnichannel efforts."

How do you convince Blue Nile management that it should return to those awful public markets, when Bain wants to take it public in two or five years?

"When incremental returns on that capital investment begin to slow down. When opportunities to do real transformation of the business begin to slow down, in terms of incremental returns, and it becomes an execution story. I can't tell you if that's going to be in two years or five years."

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