PandoDaily first reported the deal talks Tuesday evening.
Details of the merger aren't being disclosed, although both Lee and JustFab co-CEO Adam Goldenberg claim investors are "very happy."
That's hard to believe, given that ShoeDazzle raised $66 million when it was the category leader and was once worth $240 million.
Now its valuation is significantly less. The PandoDaily report pegged ShoeDazzle's new valuation between $10 million and $30 million. That estimate is too low, Lee and his investors say, but they haven't offered a rosier figure either. PandoDaily also reported that ShoeDazzle's investors will only own 4% of the new company. Lee says that's "completely wrong."
One of ShoeDazzle's investors, Lightspeed Venture Partner's Jeremy Lieu, told VentureWire that ShoeDazzle is currently worth "well north of $30 million."
"It was less of a question of, 'Is the valuation lower than last time?' than, 'Was it the right decision for the company right now?'" he said.
Polaris Ventures, another ShoeDazzle investor, has not returned a request for comment.
Goldenberg and Lee have known each other a long time, and for that reason they say the deal has been "in the making for about four years."
"ShoeDazzle launched, then JustFab. We always competed as friends," Lee told Business Insider yesterday. He also said acquisition talks sped up "a little bit" because his company was eyeing a new round of funding. The negotiations took about three months.
"It was an an opportune time to open up conversations in earnest with Adam," says Lee. "This was definitely the best option for all investors."
Both companies are optimistic about reaching profitability and generating hundreds of millions in revenue within one year. JustFab North America will be profitable soon, says Goldenberg, and the goal is to make all operations, including ShoeDazzle and JustFab's businesses abroad, profitable by next year. Goldenberg estimates the combined entity will generate more than $400 million in 2014 sales.
For the time being, ShoeDazzle and JustFab's brands will continue running under two separate teams in two different locations. But Goldenberg says JustFab Inc will be building a new 70,000-square-foot Los Angeles campus to house all employees soon.
Most of the revenue will come from the company's subscription program, which offers monthly rented items to consumers for about $40. The merged company will have 33 million users and users can also purchase one-off items on the site.
Now that ShoeDazzle and JustFab have merged, another question remains:
What will happen to Beachmint, the third rival in the LA accessory war? Earlier, there were talks of Beachmint and Shoedazzle joining forces, but those fell apart.
Both Lee and Goldenberg laughed and replied, "Good question!" when asked. "We like BeachMint," Goldenberg replied. "They're good guys over there and we wish them success. But when you put JustFab and ShoeDazzle together, we have more revenue than all other e-commerce subscription businesses combined."
Beachmint's CEO Diego Berdakin did not respond to a request for comment about the merger.