There’s been something of a debate recently about whether there’s a bubble in tech startups.  It is believed that 140 have reached “unicorn” status, i.e., valuations of $1 billion or more, and numerous voices have been raised questioning the legitimacy of those valuations.  Venture capitalists insist the valuations are legitimate, but I think Buzzfeed’s story about recently-foaled unicorn JustFab is a rather powerful demonstration that something has gone awry.

JustFab offers discount clothing and shoes on a subscription basis; shoppers pay a monthly fee to have access to the products.  The problem is, according to Buzzfeed, JustFab has received thousands of complaints from consumers who claim that they were unaware they would be charged monthly subscription fees, and found themselves unable to cancel the service.   JustFab recently settled a lawsuit brought by district attorneys in Santa Clara and Santa Cruz alleging that it deceived customers.  Even more troubling are the allegations that JustFab’s founders have a long history of forming similar companies, on a similar subscription model, that also generated considerable consumer ire – as well as complaints by credit card companies because of all the chargebacks, and an FTC complaint that settled for $50 million.  At least according to BuzzFeed, JustFab’s original financing came from investments by these other, now defunct, entities – prompting lawsuits by those entities’ creditors.

JustFab may turn out to be a legitimate company, or it may simply be an outlier.  Nonetheless, its unicorn status raises doubts about the herd.