The Thrasio Crash: Hard Lessons for Amazon Brand Sellers

As an Amazon seller, you know the drill. You’ve poured your heart and soul into building your business, sourcing or designing products, managing inventory, navigating Seller Central’s maze, and dealing with the daily rollercoaster. Many sellers dream of a payday which will enable them to walk away with life-changing money. But the recent downfall and bankruptcy of Thrasio, once a giant in the Amazon aggregator space, is a harsh wake-up call. It didn’t just impact investors; it devastated the sellers they acquired, many of whom were left unpaid.

This is a cautionary tale written in the tears and lost livelihoods of honest entrepreneurs just like you. Sellers need to understand what allegedly happened, not to dwell on the negativity, but to learn crucial lessons that protect your own businesses: whether you plan to sell soon or not.

Much of our information comes from the shareholder lawsuit filed at the end of 2024 against Thrasio and its leadership team. These allegations are being litigated and may prove to be partially untrue in the end.  In writing this blog, I wanted to highlight the lessons sellers could learn from this bankruptcy to protect themselves in future transactions, rather than comment on whether the allegations are wholly factual.

This 13-minute podcast covers the more sensational claims of the lawsuit and is easier to digest than the 80+ page lawsuit that I had to read:

Listen on:

• Spotify
• Amazon Music

The “Too Good to Be True” Trap

Thrasio built its empire by acquiring successful Amazon brands, often described as “mom and pop” operations even though some of these brands sold a large volume on the platform. The lawsuit alleges Thrasio bought these businesses on the cheap. Their strategy involved offering a mix of upfront cash and significant deferred payments, known as “earnouts,” spread over several years.

For a seller looking for a big exit, these offers could seem incredibly attractive. They promised a substantial payout. But when something sounds too good to be true, it usually is. Thrasio’s model relied heavily on these deferred payments to inflate its own value without investing enough in the necessary operational infrastructure to actually manage the acquired businesses effectively.

Why Payment Structures Matter (Especially Earnouts)

The Thrasio case brutally highlights the danger of relying on earnouts. Thrasio often paid a large chunk of the acquisition price years down the road, contingent on the business’s future performance under their management. While Thrasio initially appeared successful, its value plummeted rapidly, leading directly to their inability to pay the sellers who were counting on those deferred funds. Sellers were left with nothing after the bankruptcy.

Don’t Trust Projections Blindly

The lawsuit claims Thrasio used misleading “pro forma” financial statements and hyped-up growth projections to justify the valuations they put on businesses and to attract investors. They are accused of using non-standard accounting practices to make their financial picture look rosier than it was.

Be Skeptical of Aggressive Growth Promises. How is the buyer going to double sales next year? What’s their real plan? Ensure you fully understand how the buyer arrived at your business’ valuation. Don’t just accept their numbers; question the assumptions behind them. Are they realistic? Are they based on standard, verifiable accounting?

Due Diligence Goes Both Ways

We all know sellers have to provide mountains of data for a buyer’s due diligence. But the Thrasio case shows that sellers must do their own due diligence on the buyer. Thrasio’s downfall was heavily attributed by the lawsuit to a shocking lack of basic internal controls, especially in accounting and inventory management. They couldn’t track their inventory across over 250 locations or even maintain a functioning general ledger.

This operational chaos directly impacted the value and stability of the acquired businesses and, consequently, Thrasio’s ability to pay its debts, including seller earnouts. Unless you have negotiated an all-upfront cash deal, look under the hood of the buyer’s operations. What’s their operational structure like? Do they have competent accounting and inventory systems in place? Do they have a solid, long-term business plan, or are they just chasing rapid growth at any cost?

It’s worth repeating this crucial quote from the lawsuit: “Thrasio did not have the competence to improve (or even maintain) the profitability of the acquired businesses, often causing once successful product lines to operate at a loss, through errors, mistakes, and neglect.”

Thrasio came to Amazon having never previously sold on Amazon. What they did not know about selling on Amazon hurt them a lot.  They thought that normal business practices applied to Amazon.  They didn’t know they were in the wild west of ecommerce selling.

Some of the brands they bought had been artificially pumped up by fake reviews and buying off negative reviewers, for example, and they didn’t check as part of their due diligence.  When they stopped paying for reviews, sales dropped, and they realized that some of the products they bought were of low quality.

Dig Into the Buyer’s Financial Health

The lawsuit alleges Thrasio was effectively insolvent surprisingly early on, racking up increasing losses year after year. Auditors even flagged “substantial doubt” about their ability to continue as a going concern back to August 2020. We saw this puzzling situation for ourselves up close.

eGrowth Partners was approached by Thrasio during its heyday with an exclusive deal.  They wanted to “lock us up” and make it so no other aggregator could hire us. We declined because their business model and numbers looked like a house of cards to us.  They were big, but it seemed to us that if investors ever stopped pumping in more revenue, it would collapse.  We worked with several other aggregator companies over the ensuing years on a non-exclusive basis and never regretted our decision.

Look for evidence of the buyer’s long-term financial viability. Are they profitable? Do they have access to stable funding? Are their audits clean and completed on time? Don’t be shy about asking for financial statements and having your own financial advisor review them. Ignoring red flags like delayed audits, CFO turnover, or warnings about their financial stability can be catastrophic.

Recognizing Bad Management

Thrasio’s leadership is accused of prioritizing hyper-growth and self-enrichment over building a sustainable business. The lawsuit details allegations of insiders using company funds for personal gain, orchestrating deals like the Yardline acquisition despite internal warnings it was “irrational,” and selling their own shares while the company was struggling to raise capital.

This type of management, focused inward on enriching themselves rather than building value, led to poor controls and bankruptcy.

When you’re evaluating a potential buyer, look at the quality and integrity of their management team. Do they seem responsible? Do they have a clear strategy for long-term success? Are there checks and balances in place to prevent potential self-dealing or misuse of funds?

Lessons Learned

The Thrasio bankruptcy is a painful reminder that the glittering promise of an Amazon business exit can hide serious risks. For every seller who was left unpaid, the lesson is stark and clear: