JustFab Kimora Closet

Yesterday, Target announced the acquisition of Dermstore Beauty Group, one of three subsidiaries of Los Angeles-area ecommerce conglomerate Intelligent Beauty (IB). The transaction was a big win for founding team of Adam Goldenberg and Don Ressler, who were previously involved in the sale of MySpace parent Intermix Media to News Corp, and also for the LA startup ecosystem as a whole. But it may be more significant for what it says about the one of remaining companies in the IB portfolio: JustFab.

Intelligent Beauty is one of several holding companies run by veteran entrepreneurs who are trying to build multiple companies at once – so-called “parallel entrepreneurship.” The idea from the beginning was to build these things to profitability and hundreds of millions in revenue, before selling them off.

Last year, Goldenberg predicted that the three companies under IB would generate a combined $600 million in revenue in 2013, growing this consolidated top line figure at a 50 percent clip year-over-year. One of the other brands under IB, weight loss product and online community Sensa, is doing even better than DermStore. It reportedly generates more than $250 million in revenue with around $40 million of profit, the most of any IB company. It is also reportedly looking for a buyer. There is a bit more controversy around that business and its bold weight loss claims, but given the quality of the financials, it’s entirely possible that Intelligent Beauty could see nearly half a billion in exits this year.

The companies declined to disclose the terms of the acquisition, but according to sources close to the transaction, the asking price was between $125 million to $150 million during the run-up to the sale. According to sources, the entire DermStore team will be retained under the acquisition, and operations will be business as usual in the near term. DermStore CEO Dan Obegi deferred all press inquiries to Target, who could not be reached for comment.

So have Goldenberg and Ressler proven that parallel entrepreneurship can work? Maybe. But that doesn’t mean they want to keep doing it. Despite the successes, the pair have said repeatedly that there will be no new IB companies.

Why? Because they want to focus all their energies on JustFab. That’s ironic given the bottom seems to be falling out of the market for LA subscription commerce companies. Even last year, it was already clear that JustFab was the golden goose in the eyes of its founders, who called the women’s fast fashion subscription retailer a “multi-billion dollar opportunity” and hinted at their plans to focus on this company exclusively.

JustFab is the only of the three IB companies to have raised venture capital directly, bringing in $109 million in total. The company is said to be closing in on $200 million in yearly revenue and may be profitably by year’s end, Goldenberg has said in the past. With a recent European expansion that’s ahead of schedule, and the acquisition of kids retailer FabKids signaling a category expansion, the company shows no signs of slowing down.

How on earth can that be possible given ShoeDazzle’s stumbles and BeachMint’s woes? Goldenberg and Ressler have proven themselves among the best performance marketers in the business. And in an industry where customer acquisition costs can make or break a P&L, this has made all the difference in the world. The company also showed more discipline early on around category and geographic expansion, and resisted the urge to pay for celebrity endorsements. Now, there are persistent rumors that JustFab – the clear category leader – will eventually acquire category No. 2 ShoeDazzle, while BeachMint continues to toil as a distant No. 3.

Goldenberg describes the DermStore sale as a validation of the Intelligent Beauty model, which revolves around creating category-leading online brands and growing them to scale and profitability before finding a suitable home. “It was very competitive and very successful sale process,” he said this morning when reached by telephone. “Target is a great buyer, and we couldn’t be more pleased.”

While it’s no billion-dollar IPO, DermStore was a nice double for Intelligent Beauty. It offers 26,000 products from 750 brands through its dermstore.com, hairenvy.com, and blush.com websites and is the second largest online beauty retailer, behind Sephora and ahead of Ulta, according to Internet Retailer. It is also the fastest growing among the category leaders.

The company is Target’s second Los Angeles-area ecommerce acquisition of the year, following its acquisition of Cooking.com in March. The global retailer has shown an appetite for ecommerce acquisitions recently, also buying Colorado Springs-based Chefs Catalog the same month.

Unlike JustFab, Dermstore never raised outside financing directly, although its parent Intelligent Beauty did raise $43 million from Technology Crossover Ventures (TCV) in 2008 after being bootstrapped by its founders since formation in mid-2006. Today’s exit will be a modest financial windfall for Goldenberg, Ressler, TCV, and the rest of DermStore’s senior management team, who spent as many as seven years building this company.

To the extent that that wealth trickles down into angel investment dollars and these executives eventually go on to form follow-on companies, the deal is sure to benefit the Los Angeles startup ecosystem as well. What this transaction won’t do is impact JustFab or Sensa, as the companies are now fully independent and don’t have access to the Intelligent Beauty balance sheet.

For Goldenberg and Ressler, DermStore was actually the second crack at the beauty ecommerce space. The pair, who were part of the senior executive team at MySpace parent company Intermix Media, ran its ecommerce and performance advertising division called Alena Media, which generated hundreds of millions in revenue and was its only profit center at the time of its sale to News Corp. Alena’s biggest winner was Hydroderm, a DermStore analog that withered under News Corp’s ownership. Emboldened by the early success, and similarly frustrated by the way the company was devalued post-acquisition, Dermstore was the first company formed within Intelligent Beauty.

Exiting DermStore should help heal some of those old wounds, but the ultimate redemption remains out there. A year ago, I called Intelligent Beauty “Southern California’s best hope at a multi-billion exit.” DermStore and Sensa appear to be warm up acts and won’t get the company all the way there. With parallel entrepreneurship appearing behind them, it’s all up to JustFab now. Rolling up competitors like ShoeDazzle could get them a lot closer.