fashion

Philosophy skin care founder buys her startup out of bankruptcy

February 3, 2014: 2:11 PM ET

Archetypes burned through more $19 million in just two years on a website that never launched out of beta.

Cristina Carlino

Cristina Carlino

FORTUNE -- The biggest New York startup that no one's heard of has bought itself out of bankruptcy. Founded by a group of high-profile executives, the startup flew under the radar of the New York tech scene, while burning through more than $19 million in just two years on a website that never launched out of beta. Now, the company is stiffing freelancers and developers who worked for it.

Archetypes, formerly known as ArchetypeMe, was created in 2011 with the goal of blending content, commerce, and community. The site offers users content and shopping suggestions based on a quiz that determines which of 12 personality "archetypes" they resemble (for example: "athlete" or "explorer").

The company's strategy didn't adhere to the popular "lean startup" methods that preach low burn rates and small, data-driven iterations on a product. Instead, Archetypes ballooned to more than 40 employees, according to ex-employees, launching and discarding several major redesigns led by development agencies on contract (like Elephant Ventures in New York). The company spent money on elaborate events, including a Hamptons party where fashion bloggers were transported in Audis and gifted Samsung Galaxy phones. Content didn't come cheap either. Archetypes hired bestselling author Lee Woodruff to host a web show, for example, and Andrew Chang, an artist who makes couture fashion dolls, is understood to be developing a TV show for the company. At one point the company created a different fragrance for each of the personality types, which it planned to sell. (Plans for a line of Archetypes-inspired jeans were scrapped.) For all that, Archetypes had only accumulated around 100,000 sign-ups, ex-employees say, and it wasn't clear how many remained active users.

The company hasn't earned a dime of revenue, but outlined plans to earn money from affiliate fees, in which third-party e-commerce sites pay a commission on sales driven by Archetypes, according to a court document.

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Last year Archetypes' executives tried to raise a $20 million in venture funding and failed, according to a court document. After the unsuccessful fund-raise, the company laid off 32 employees. (Puzzlingly, Yang kept his job.)

Archetypes raised debt from its executive chairman, Philosophy cosmetics founder Cristina Carlino, but it was not enough to keep the lights on. In November, the company filed for Chapter 11 bankruptcy protection with between $10 million and $50 million in liabilities owed to between 50 and 99 debtors.

On Jan. 16, Archetypes emerged from bankruptcy thanks to Carlino, who already owned 49.5% of the company. Archetypes was acquired by CC Bridge Lender, the vehicle which Carlino used to provide debt. Odyssey Capital Group ran a bankruptcy process, but 35 potential buyers turned down the opportunity to make a bid, according to the court memo.

Now, Interim President Tom Gallagher is informing its creditors, which include freelance writers, agencies, and developers, that it will be unable to pay back the money it owes. In a comment to Fortune, Gallagher said, "We have 11 employees, pre-revenue and are still in beta. Our company is a new company that acquired some Archetypes assets. We are not able to comment on the ongoing bankruptcy case involving the old company."

Archetypes' unraveling was notable not just for how quickly it burned through $19 million, but also for its well-known investors, advisors, and founders. The startup's stable of co-founders included Carlino; Michael Mendenhall, former CMO of HP; Andy Spellman, a former VP at Goldman Sachs; and David Lipman, who ran the 86-year-old modeling and talent agency Lipman. Lisa Gabor, a founding editor of InStyle magazine and Fuse magazine, was Archetypes' editor-in-chief; and Bernd Beetz, former CEO of global beauty products company Coty, was on the company's board of directors.

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In addition to Carlino's stake, Archetypes was 44.5% owned by a firm called Revolate Holdings, which touts itself as a marketing agency and investor. The firm, which has taken down its website since the bankruptcy, invested $9.5 million into Archetypes, according to court documents. Revolate Holdings' executives include Lipman, Spellman, and Mendenhall, and its investors reportedly include former Barclays CEO Bob Diamond. Ex-employees say Mendenhall frequently referred to celebrity investors like athletes and actresses, as well.

Revolate Holdings had also invested in Lipman, the agency, which abruptly filed for Chapter 7 liquidation in September 2013. (Harry Winston has sued the company for fraud.) Archetypes' ownership structure, revealed in its bankruptcy filings, shows Archetypes had four subsidiaries, one of which has its own subsidiary, as well as a fifth separate LLC.

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