Pando

After rumors that NastyGal was seeking a buyer, new rumors emerge of a $40 million cram-down round

By Sarah Lacy , written on October 12, 2016

From The Money Desk

NastyGal -- no matter what has befallen it in recent years -- was an insane success story from its humble roots of an eBay shop built by a young woman with an uncanny sense of style, business acumen, and understanding of who her “girl” is.

Sophia Amorusa bootstrapped her way to some $30 million in revenues, before even meeting with venture capitalists.

She was a hero of brand-based ecommerce 2.0, a hero of women CEOs, and a hero of LA entrepreneurship. While the “#” was a little contrived, her bestselling autobiography “#Girlboss” was an inspiration of what women who aren’t in the male YC tribe could do with their wits, guts, and natural given talents. She was on Forbes’ list of America’s Richest Self-Made Women -- the second youngest on the list next to Taylor Swift.

So -- simply put-- it sucks if you care about any of those things that NastyGal has struggled in recent years.

After her book’s first printing, Amorusa stepped down as CEO. Her company has had to do layoffs back in 2014 and more recently this year. A month ago there were reports that the company was trying to sell itself.

And now Pando is hearing some new rumored good news/bad news for the company.

The good: According to sources, NastyGal has raised more money. Some $40 million, we are hearing. It’s unconfirmed who lead the round, but we have heard that it came in via Ron Johnson, the former JC Penney CEO and Apple retail guru.

That would make sense: Johnson is an existing NastyGal investor, leading its 2015 C round. He also joined the company’s board at the time. That 2015 round was spun as a sign of NastyGal “growing up” with Amorusa stepping down as CEO, Sheree Waterson taking over, and experts like Johnson joining the board. But rumors of the company’s struggles have persisted.

If our sources are right, the cash infusion is a good thing from the point of view of NastyGal’s pure survival. After all, NastyGal still has loyal fans and a strong brand. It recently formed a collaboration with Courtney Love, and when Taylor Swift donned a NastyGal dress it sold out immediately. Amorusa has increasingly become an icon for young women even as her company has struggled. We happened to notice she was doing an event for her new book while we were in New York last week, and we spotted plenty of girls in attendance dressed in that signature NastyGal style. She still has a strong and loyal following.

If this report is true, $40 million adds to that strong brand and loyal tribe, cash and time-- the two most precious commodities in the startup world.

And Johnson-- regardless of his drubbing at JC Penney-- is a big name in physical retail, which has been a big push for NastyGal of late. You can debate whether that’s a good or bad strategy…. Bonobos has insisted its “guide shops” are one of it’s best customer acquisition channels, particularly for higher-dollar tickets. But Johnson’s experience with building Apple Stores was from a very different position of strength than NastyGal and JC Penney from a notably worse position of weakness. But Johnson bringing in more capital is certainly a sign of his commitment and continued belief in the brand.

The bad: The round has effectively recapped the company, cramming down existing investors, some of whom we are hearing declined to participate at all. Amorusa was given some compensation to keep her incentivized as a creative force, founder, and spokesperson for the company, we hear.

I’ve reached out to both Amorusa and Index’s Danny Rimer-- long the company’s lone VC and other board member-- to asked them to confirm the specifics and did not hear anything back from either. I know both decently well. Their silence could mean a lot of things. After years of swirling rumors, perhaps they just don’t want to comment on anything. Perhaps, a round is still in progress or not quite wrapped up and they don’t want to jinx it.

But frequently, if a single fact is wrong, entrepreneurs will take it as an invitation to insist your account is completely false. So it could be also read as a confirmation that the report is true.

Cram-down rounds are never fun. It’s unfortunate for the many people who believed in Amorusa’s unlikely success story and joined the company early on if their shares are now worthless. It sucks for investors like Danny Rimer who won her confidence at the company’s peak optionality because he “got” her. And it really sucks for Amorusa who had a thriving lifestyle business and didn’t really “need” VCs. It’s also unfortunate for the industry, because it’s another example of a badass iconic female founder’s company struggling.

But still I hope the news is true. Because it means the company isn’t done yet. As long as you have time and cash, you’ve got a shot at a turn-around.