Both online grocery platforms, Misfits Market raised nearly $530 million since being founded in 2018, most recently a $200 million Series C round in 2021 that put its valuation at over $1 billion. Meanwhile, Imperfect Foods, founded in 2015 to rescue and redistribute goods, brought in a total of $229 million, including a $110 million Series D round last year.
Though Ramesh declined to disclose the valuation of the deal, he did say that as combined online grocery platforms, it would accelerate Misfits Market toward $1 billion in sales and reach profitability in early 2024, something that would not necessarily be possible as two separate companies.
“Scale is what will drive long-term profitability in online grocery and unit economics efficiency,” he said. “Until probably close to a billion dollars in revenue, it is very hard for any online grocery company to be even close to profitable.”
Indeed, both companies have similar financial and cultural synergies, Ramesh said, including a focus on eliminating food waste. In the U.S. that affects between 30% and 40% of the food supply, driving up costs, according to the companies. They’ve estimated to have collectively “rescued nearly 500 million of pounds of food that may otherwise have gone to waste,” Imperfect Foods CEO Dan Park said in a statement.
This is Misfits Market’s first acquisition and is particularly fitting, given the online grocery environment over the past few years, Ramesh said. He has long believed that the food e-commerce and grocery commerce space was “ripe for consolidation” and saw a wave of it happen in 2020 and 2021; for example, HelloFresh acquiring both Factor75 and Youfoodz.
Having a strong balance sheet, the company saw a few deals come its way, but Ramesh said the company was not super interested in pursuing them. Then a few months ago, he was introduced to one of Imperfect Foods’ investors and discussed Imperfect going after a round of funding, but it was a challenging market for capital.
“We’ve known Imperfect for a few years because we're in the same space and we're the two big names people talk about,” he added. “Those discussions then turned into ‘there are no two businesses that are as synergistic as these two businesses, what if we discussed something more strategic?’ That's when we seriously started looking at this.”
The acquisition is still subject to regulatory approvals and closing, but Ramesh expects after the closing, it will take about a year for the two companies, which will have a combined 3,000 employees, to fully integrate. He will serve as CEO of the combined company, and Imperfect Foods’ executives will join the Misfits Market leadership team.
Park, who joined Imperfect Foods as CEO in January, will advise the transition and integration, then “will likely transition out post-integration,” Ramesh said.
The online grocery industry in the U.S. is poised to be a $187.7 billion industry by 2024, up from $95.8 billion in 2020. However, as Ramesh mentioned, it is difficult to reach profitability in this industry as sales have leveled off in the past two years. Some companies have had to make layoffs and leave markets due to “burning a tremendous amount of cash and not raising capital,” and public markets don’t like that, he added.
Rather, Ramesh is adamant that Misfits Market is going to be the exception and become a public company, eventually.
“That would be the next immediate step for us,” he said. “When we are profitable, we will be able to take on all of these massive incumbents.”
Wilson Sonsini Goodrich & Rosati is serving as legal advisor to Misfits Market. Solomon Partners is serving as exclusive financial advisor to Imperfect Foods, and DLA Piper is serving as legal advisor to Imperfect Foods.