Misfits Market is getting unfinished business in all its stock deals, Misfits Market founder and CEO Abhi Ramesh told TechCrunch.
Both online grocery platforms, Misfits Marketplace has raised nearly $530 million in funding since its inception in 2018, with a recent $200 million Series C round in 2021 that has raised more than $1 billion. Meanwhile, Imperfect Foods, founded in 2015 to salvage and redistribute goods, has raised a total of $229 million, including a $110 million Series D round last year.
While Ramesh declined to disclose the value of the deal, he said combining the online shopping platforms would accelerate Misfits’ market to $1 billion in sales and profitability by early 2024, which would not necessarily be possible as two separate companies.
“Scale is what drives long-term profitability in online grocery and department economics,” he said. “Until nearly a billion dollars in revenue, it’s going to be very difficult for any online grocery company to be profitable.”
Indeed, both companies share similar financial and cultural ties, Ramesh says, including a focus on eliminating food waste. It affects 30 percent to 40 percent of food supplies in the U.S., driving up costs, according to the companies. “They saved nearly 500 million pounds of food,” Perfect Food CEO Dan Park said in a statement.
This is Misfits Market’s first acquisition and is particularly appropriate, given the online grocery environment over the past few years, Ramesh said. He has long believed that the food e-commerce and grocery business space is “ripe for consolidation” and sees a storm brewing in 2020 and 2021. For example, HelloFresh acquiring both Factor75 and Youfoodz.
With a strong balance sheet, the company has seen a few offers come its way, but Ramesh says the company is not keen on pursuing them. Then a few months ago, he met with Imperfect Food investors and discussed Imperfect going after a round of funding, but it was a challenging market for capital.
“We’ve known perfection for a few years because we’re in the same place and we’re two big guys that people talk about,” he added. “Those conversations turned to, ‘Aren’t there two businesses that have merged like these, should we discuss something more strategic?’ That’s when we started to take this seriously.”
The acquisition is still subject to regulatory approval and closing, but Ramesh expects that after closing, the two companies will take about a year to fully integrate the combined 3,000 employees. 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 in January, advises on the transition and the merger, then “transitions post-merger,” Ramesh said.
The online grocery industry in the US is set to become a $187.7 billion industry by 2024, up from $95.8 billion in 2020. However, according to Ramesh, it is difficult to achieve profitability in this industry as sales volume has increased in the last two years. . Some companies have been forced to lay off and exit the market by “burning huge amounts of cash and not raising capital,” and the public markets don’t like that, he said.
Instead, Ramesh insisted that Misfits Market would be unique and eventually become a public company.
“This will be the next immediate step for us,” he said. When we become profitable, we can take over all these huge incumbents.
Wilson Sonsini Goodrich & Rosati is serving as legal counsel to Misfits Market. Solomon Partners is serving as Imperfect Foods’ exclusive financial advisor, and DLA Piper is serving as Imperfect Foods’ legal advisor.
