Misfits Market Inc., an online retailer that sells subscription boxes of “ugly” produce, raised $85.0 million from investors in a Series B funding round led by venture capital firm Valor Equity Partners.

Misfits Market says it “rescued” more than 40 million pounds of produce.

Misfits Market, founded in 2018, says it will use the new funding to expand its offerings and open a new warehouse in Delanco, New Jersey, that will more than double its order capacity across the East Coast, South and Midwest. The new warehouse is expected to open in August. 

The retailer says it is expanding to accommodate a 400.0% spike in consumer demand during the coronavirus crisis. To help meet the increase in orders, Misfits Market hired 400 new employees since March. That compares to 150 new hires during the 3 months before COVID-19 struck the United States. 

Misfits Market sells fresh, organic produce that a traditional grocery store would deem to be the wrong size, too misshapen or otherwise unsuitable for selling in stores. The retailer says its prices are about 40.0% less than consumers would pay in grocery stores. Consumers can order boxes on a weekly or biweekly subscription basis.

Since its inception, Misfits Market says it “rescued” more than 40 million pounds of produce that would have otherwise gone to waste and shipped more than 3 million boxes to consumers, says Abhi Ramesh, founder and CEO.

In addition to selling produce boxes, Misfits Market includes an online marketplace on its website where customers can add discounted shelf-stable and specialty products to their subscription boxes. Brands available on the marketplace include Bob’s Red Mill, Taza Chocolate, Minor Figures Oat Milk, Teatulia and Ceremony Coffee.

“Our marketplace is also an extension of that food rescue mission. All of the items you’ll find there are high-quality foods from hand-picked suppliers and producers we love that would have gone to waste if we hadn’t stepped in,” Ramesh says. Some marketplace products are short-dated (stamped with a “best-by” date that’s fewer than 6 weeks away), excess inventory or stock that is still in old packaging after a brand makes a packaging change. In all cases, the products would not have sold in stores, he says.

Misfits Market will use some of the new funding to expand its marketplace offerings. By the end of the summer, it also plans to add a feature that will allow subscribers to customize their boxes. 

“This spring was a real turning point for our business,” Ramesh says. He declined to say how many subscribers the retailer gained so far in 2020 but said 40% of its new customers had never ordered groceries online before. In addition to the new customers, demand grew in the spring from Misfits Market’s existing subscribers, he says.

“People who may have used Misfits Market as a supplementary source of food in the past have now begun to look at us as a primary source as we expand our grocery assortment,” Ramesh says.

Misfits Market operates in 26 states and the District of Columbia, including recent additions of Arkansas, Mississippi, and Louisiana. The retailer plans upcoming launches in Wisconsin, Minnesota, Iowa,and Michigan.

Besides Valor Equity, other investors in the new funding round are Greenoaks Capital, Third Kind Venture Capital and Sound Ventures (founded by actor Ashton Kutcher and talent manager Guy Oseary). Including the new funding, Misfits Market has raised $101.5 million from investors across three funding rounds, according to Crunchbase data. As part of the funding deal, Jonathan Shulkin, a partner at Valor Equity, will join the Misfits Market board of directors.

Misfits Market is not the only purveyor of ugly produce to raise money recently. In May, produce retailer Imperfect Foods closed a $72 million Series C funding round led by Insight Partners. Other investors included Norwest Venture Partners, which led an earlier funding round. 

Since launching in 2015, Imperfect Foods raised $137.1 million across nine funding rounds. The retailer said the new funding would “fuel continued expansion of the grocery delivery service across the country, increase capacity in new and existing fulfillment centers, expand assortment and enhance technology to better connect producers, farmers and customers.” 

According to the United States Department of Agriculture, the U.S. annually wastes 30.0% to 40.0% of its food supply. At the retail level, equipment malfunctions, over-ordering and discarding blemished produce are leading causes of food waste. In 2015, the USDA joined with the U.S. Environmental Protection Agency set a goal to cut the nation’s food waste by 50.0% by 2030.