BeachMint and ShoeDazzle are both flashy fashion startups in Los Angeles that have raised gobs of outside capital -- $73.5 million and $60 million respectively.
Recently, both have experienced management turnover and multiple sources say there was a period of time, about three or four months ago, when the two e-commerce companies discussed merging.
If the merger had happened, BeachMint would have likely acquired ShoeDazzle.
Neither ShoeDazzle nor BeachMint explicitly denied the merger talks, although both confirmed there's currently no deal in the works.
"There is no truth to any BeachMint/ShoeDazzle merger," ShoeDazzle's newly reinstated CEO, Brian Lee, told Business Insider via email. He co-founded ShoeDazzle with reality star Kim Kardashian. "We have had strategic partnership meetings in the past as I am very close friends with Josh Bermna and Diego Berdakin."
"Haha no mergers over here," BeachMint's CEO Diego Berdakin also told Business Insider.
But if the idea of a merger between the two companies seems laughable now, why wasn't it three months ago?
Multiple sources say both companies went through trying periods with management turnover and high burn rates.
"When tech companies struggle, they tend to reach out to others and talk about the possibilities of consolidation," one of the sources explained.
"Brian Lee left ShoeDazzle and everyone internally felt disillusioned by him leaving," this person said. (Bill Strauss was hired last fall after Lee left to run Honest Company with Jessica Alba.) "The new CEO came in, Bill Strauss, and there was an internal revolt because he had absolutely no merchandising skills and no sense of the business."
Soon, ShoeDazzle executives began to depart. Deborah Benton, who has been called the "Sheryl Sandberg of LA," was COO. Many employees looked up to her, but her June departure for Nasty Gal left the company in "disarm."
"She left because there was no leadership," a source says. Benton declined to comment for this story.
Meanwhile, Beachmint was suffering executive turnover of its own; its CMO departed. Sources say it was "hemorrhaging money like crazy."
Both ShoeDazzle and BeachMint hunted for additional capital in Silicon Valley, Business Insider was told. Neither had much luck.
It was then, it seems, that the two companies struck up the initial merger discussions. But the talks didn't get very far.
One source with indirect knowledge of the talks said the idea "didn't seem to have legs." Others with deeper knowledge agreed; they said the conversation likely dismantled because the merger would have been too complicated.
"They probably quickly discovered they wouldn't be able to agree how to divide the companies," one said.
"Who would run it? And you've got Andreesseen Horowitz and Lightspeed Ventures on one side (ShoeDazzle); NEA, Accel and Goldman Sachs are on the other (BeachMint). Unless one was on the verge of being bankrupt, there's almost no way investors would approve the deal. Mergers are best when one is a hugely successful company and the other is going down. With two struggling companies it usually doesn't work."
Since the rumored discussions a few months ago, both companies have made a number of improvements.
ShoeDazzle's CEO, who seemed to be a far cry from a cultural fit, was let go. Brian Lee, one of the most well-respected entrepreneurs in LA (let alone, anywhere), is back manning the ship.
BeachMint hired "adult supervision," COO Greg Steiner. Steiner is a 12-year veteran of eHarmony. It also gained software developer Carl Trudel from Live Nation, Jason Reuben of Gemvara, and serial entrepreneur, Michael Broukhim.
Sources also say BeachMint is raising a new round of financing. Berdakin tells Business Insider that his company is on "three straight months of having its biggest months ever."
"Our company is doing very well," he wrote. "Cash burn is well under control and we have a lot of cash in the bank and plenty of runway to focus on substantial profitability. The team is as strong as ever and we continue to attract the best talent in Los Angeles as well as the strongest investor base."
Those who spoke of the merger discussions haven't given up hope in the companies either.
"The two guys behind BeachMint, Diego and Josh, are very talented," one said. "They just may have gotten a little caught up in everything and people were throwing money at them. They drank the cool-aid."
As for ShoeDazzle, this person called Brian Lee "the ultimate startup guy, full of creativity."
But he'll have to make some big hires to right the damage former executives left in their wakes.
"I am very excited to be back at the helm of ShoeDazzle," Lee wrote to Business Insider. "I think there is tremendous opportunity that can be unlocked here and being the CEO of two exciting companies is a lot of fun."
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