Imperfect Foods Funding Round Brings Valuation to $700 Million

(Bloomberg) -- Imperfect Foods Inc., a startup that specializes in delivering groceries that could otherwise go to waste, has completed a $95 million Series D financing round.

The fundraising was led by Insight Partners and Norwest Venture Partners. It brings the San Francisco-based company’s valuation to more than $700 million, according to a person familiar with the company who asked not to be identified because the information isn’t public.

The company offers weekly grocery deliveries filled by subscription, including food items that, because of aesthetic flaws or short shelf-lives, aren’t sold in supermarkets. Imperfect, which has broadened its selection beyond produce to grains, beverages and packaged food recently, says the model gives consumers sustainable, affordable and high-quality food -- and reduces waste.

The business has been boosted by the pandemic as more shoppers avoid grocery stores and choose subscription services instead. In May 2020, 40% of grocery shoppers had tried online groceries ordering, up from 28% a year earlier, according to research group NPD. The percentage of consumers using online grocery services has held steady since then.

Imperfect has seen nine straight months of triple-digit sales growth, according to Chief Executive Officer Philip Behn. The company, which has a subscriber base of 350,000 customers, said it closed 2020 with a revenue run rate in excess of $500 million, suggesting annual sales at that level if it can sustain that performance. The company didn’t respond on request for comments about its valuation.

The cash infusion will be used to accelerate growth, with an aim to double capacity and reduce errors and delayed deliveries, Behn said. Imperfect, which was founded in 2015, will also invest in technology and measures to increase its customer base while providing more tools to agricultural suppliers. Behn says the company has added a couple of hundred employees each year and expects that number to be higher in 2021.

Imperfect’s recent success mirrors that of competitors such as Instacart Inc., which has been reported to be mulling an initial public offering. Smaller specialty grocers are also seeing booms, including Hungryroot Inc., a grocery service specializing in healthy food and meal planning, and Thrive Market, a natural and organic goods purveyor.

Sustained Demand

At least some of that growth will stick post-pandemic, according to NPD researcher Darren Seifer.

“Many consumers who are using digital ordering during the pandemic were solely offline users pre-Covid,” Seifer said. “They now realize the convenience online ordering provides -- more evidence we’ll see online remain elevated into 2021 and beyond.”

Adam Berger of Insight Partners sees continued growth for Imperfect in 2021, although not at the same astronomical pace. “It would be hard to see the kind of growth rate we saw in 2020,” he said. “What we’re looking for are very high double-digit growth rates.”

Behn remains bullish. “We have seen acceleration of all metrics that drive the business: average basket size, frequency with which they’re buying, and loyalty,” he said.