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Beautycon Faces Mounting Pressure, But Its Problems Predate Coronavirus

With the global events industry at a halt, the beauty festival company is still seeking new investment while being served with a lawsuit and reportedly laying off more employees.

With the coronavirus forcing event cancellations and a new round of fundraising yet to be locked in, Beautycon seems to be under increasing pressure. 

The Los Angeles-based company, best known for its namesake beauty festivals, is said to have laid off about 50 percent of its staff in mid-March, sources told WWD, leaving behind only a skeleton crew of about five or six salaried workers. 

The layoffs follow a civil suit filed in February by 3G Productions, suing Beautycon for nearly $300,000 in damages for breach of contract. The claim indicates that Beautycon failed to pay the Las Vegas-based production company for the audiovisual work it did on the Beautycon festival in Los Angeles in August 2019. 

The production company alleges that it made several attempts between August and January to negotiate informally with Beautycon. Within that time, the claim states, Beautycon went from making “repeated representations that it could and would pay” to negotiating for payment extensions due to “alleged financial circumstances.” 

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The lawsuit claims contradict statements Beautycon made to WWD in late 2019, when it confirmed that it had hired Ohana & Co. to explore additional investment. “We are legitimately in the best state we’ve ever been in, in regards to fundraising,” said chief executive officer Moj Mahdara, in an interview for a WWD report published in December. She added that the company’s festivals have “always been profitable.”

A motion for a default judgment in the 3G suit was filed in late April, as Beautycon has continued to be unresponsive to the legal claims. 

When contacted by WWD in early May, Beautycon said it could not comment on ongoing litigation, and did not respond to request for comment on source reports about layoffs. Instead, a spokesperson for Beautycon pointed WWD to the Frontline Responder’s Fund, a GoFundMe account it is encouraging beauty companies to donate to during the COVID-19 pandemic through a new initiative, BeautyUnited. 

Adding to speculation over the company’s financial state, remaining staff at Beautycon experienced delays in payroll last month, yet were said to have been asked to continue working. Requests by employees to be laid off or furloughed in light of missed paychecks were denied, sources said.

Beautycon confirmed that one payroll was indeed delayed in April.

“All of our employees have been fully compensated,” said Michael Rafter, chief financial officer for Beautycon. “One payroll in April was briefly delayed but ultimately paid in full.” He added that “no formal requests for layoffs or furloughs were received by the company.”

Other reports from sources say that previously laid-off employees had been asked to work for free in April as “a favor.” Rafter refuted this, noting that no employees were ever asked to work without pay.

One online review of Beautycon, published May 3 and written by someone identifying themselves as a former full-time employee, mentioned “missed paychecks” as a common occurrence because “the company has no money.”

Beautycon is said to have told employees that a new funding deal is close to completion but does not know when that funding will come through.

If a fundraising deal for Beautycon is near, it is not clear if that deal will still be brokered by Ohana & Co. The investment bank said it could not comment on matters related to Beautycon, and did not respond when asked by WWD if it was still working with the company. Rafter told WWD that Beautycon is “currently exploring multiple financing options as we plan for a slow return to large-scale live events.”

Given the virtual shutdown of the global economy, new funding is increasingly hard to come by for many new ventures, though Beautycon is not exactly new to market. The company since 2014 has taken money from a slew of prominent investors, from L’Oréal and Hearst to Adrian Cheng’s C Ventures and Sundial Brands founder Richelieu Dennis.

While the entire live events industry — along with most others, including the beauty sector — has certainly been thrust into a state of uncertainty, WWD’s initial report from December indicates that Beautycon’s troubles may have started before the economic shutdown, with sources indicating the company was having a tough time obtaining new funding due to concerns over its potential for profitability.

WWD reported in December that despite a purportedly thriving festival business and accolades from media outlets, the company in 2019 had been plagued by missteps. At the time, sources told WWD that the company was running out of money and having a tough time fundraising. This is not uncommon for the start-up world, but Beautycon seemed to be facing a bevy of challenges.

Though the timing of the most recent layoffs indicate they could have been COVID-19-related, WWD previously reported that Beautycon continually laid people off in 2019, ultimately eliminating over 70 percent of the company’s employees, according to sources. WWD also reported on additional lawsuits filed against Beautycon for breach of contract and reports from beauty industry clients who were disenchanted by the ROI after a “disappointing” New York event. Then there was Beautycon Pop, launched in Los Angeles in late 2018 and billed as a foray into experiential retail with ambitious plans for expansion into multiple U.S. cities — none of which ever came to fruition. Beautycon Pop is said to have not met revenue expectations and was ultimately forced to slash ticket prices and operating hours before shuttering for good.

Beautycon confirmed that in February it departed the Beautycon Pop space at 333 La Cienega Boulevard, where it had moved its corporate headquarters once Pop shut down. The company is said to be operating out of two small rooms at a WeWork in Los Angeles.

Sources at the time of WWD’s initial report blamed Beautycon’s challenges on a toxic corporate culture led by Mahdara, a charismatic orator who many said lacks the operational expertise necessary to manage a global events business.

In an e-mail to an undisclosed list of recipients on May 3 — presumedly industry executives — obtained by WWD, Mahdara said that “planned festivals” in New York, Los Angeles and the Middle East are “TBD,” for 2020 while a festival in Tokyo, which WWD previously reported is produced by a licensee, is canceled. In the meantime, she continued, Beautycon is “exploring a TV Special, Digital Masterclasses, Premium Digital Content & Podcasts [sic].” This content is likely not actually close to production yet, as the e-mail went on to request recommendations for “great producers & creative agencies who specialize in development [sic].”

Meanwhile, Beautycon’s social media indicates the type of waiting game many companies are in right now given the pandemic. As it is in a holding pattern, Mahdara is hosting on Instagram a “Beautycon Talks” series with beauty and wellness entrepreneurs such as Vintner’s Daughter founder April Gargiulo and Dr. Nigma Talib. She is also pushing BeautyUnited, which seems to be a platform encouraging beauty industry companies to donate money and products to the Frontline Responder’s Fund. It is not clear whether the initiative is a registered 501(c)(3).

Mahdara, on a personal note, said she has also signed with an agent to explore a book deal.

More From WWD: 

Amid Challenges, What’s Next for Beautycon? 

COVID-19 Response: Salons Re-Open, With Some Trepidation