How reality broke Ÿnsect, a French startup that raised over $600M in insect farming.

The beginning of French insect shot while “Iron Man” star Robert Downey Jr. he did his best on the Late Show during Super Bowl weekend 2021. Now, nearly four years later, the insect-growing company is up and running. placed in judicial liquidation – especially bankruptcy – due to insolvency.

The company’s demise is not surprising, as Ÿnsect had been in limbo for months. However, there is much to explain how the startup will spend money even if it raises $ 600 million, including from Downey Jr’s. FootPrint Coalitiontaxpayers, and many others.

In the end, Ÿnsect failed to achieve its goal “Revolutionize Food Chain” and proteins produced by insects. But don’t be too quick to attribute its failure to the ‘ick’ that many westerners feel about bugs. Food for the people was not his main goal.

Instead, Ÿnsect focuses on producing insect proteins for animal feed and livestock, two markets with very different economies and margins that the company has not yet decided upon.

That decision extended to its M&A strategy. In 2021, Ÿnsect acquired Protifarm, a Dutch company that raises worms for human consumption, adding a third market to the mix. Although the company announced the agreement, it is the CEO Antoine Hubert he agreed it may take several years for human food to represent 10% to 15% of the Ÿnsect’s income.

“We still see animal feed and fish as the biggest contributors to our revenue in the coming years,” Hubert said at the time. In other words, Ÿnsect was acquiring a company in a market that may remain underdeveloped for years – at a time when startups need growth capital.

And money was a problem. According to publicly available information, Ÿnsect funds from its main organization it went up at €17.8 million in 2021 (about $21 million) – the number increased by internal displacement between organizations. By 2023, the company has lost €79.7 million ($94 million).

So how did a company with so little capital raise $600 million? The answer wasn’t a hype-driven investment that paid out more during the 2021 financial year. Instead, Ÿnsect attracted investors with a focus on the likes of Astanor Ventures and a private equity bank. Bpifrance which entered into a permanent vision.

The explanation was simple – to provide an alternative to protein supplements like fish and soy. The same thesis also attracted a lot of money from the competitors Better Origin and Innovafeedand it seemed encouraging.

But that vision collided with the reality of the market. Animal feed is a commodity market driven by price, not fixed costs. In a perfect world, insect proteins would be in circulation, with insects eating food that would otherwise go to waste. But in practice, industrial pest control often fails trust on fruits used as animal feed – meaning that insect protein only adds value. To feed the animals, the math didn’t work.

Ÿnsect finally realized this. Animal feed turned out to be very different: it is not driven by price compared to animal feed and the best market for insect protein, despite the competition related to other proteins such as. lab grown meat. By 2023, the company looked his way again for animal feed and other high-end sectors, Hubert cites economic challenges.

“In an environment where there is an increase in energy and materials and in the price of goods and loans, we cannot sell large amounts of wealth in markets that are very limited (animal food), while you have other markets where there are many requirements, good returns and high margins,” said Hubert at the time.

The 2023 pivot on livestock feed came too late. By then, Ÿnsect had already made a big, big-money bet that would have ruined the company. That bet was Ÿnfarm, a “giga factory” in Northern France where the company provided “global” funding. the highest cost of a bug farm.” Built to produce insects on a large scale, the facility cost hundreds of thousands of dollars – money that Ÿnsect spent before it could prove its business model or calculate its assets.

To oversee the launch of Ÿnfarm, Ÿnsect brought in Shankar Krishnamoorthy, a former executive at French energy giant Engie. When the move to pet food failed to save the company, Krishnamoorthy replaced Hubert as CEO.

Ÿnsect then closed the manufacturing facility it acquired in Protifarm and reduced operations. But shutting down one location while operating a gigafactory designed for the wrong market won’t solve the bigger problem.

For Professor Joe Haslam, who teaches courses on Scaling Up in the MBA Program at IE Business School, “The fight against pests is not a secret and not a pest. It is the result of a mismatch between the needs of the industry, the commercial market, and time, which are combined with other practices and decisions.”

The fact that Ÿinsects have failed does not mean that the entire field of insect farming has ended. Competitor Innovafeed is he says he is doing wellin part because it started with a small manufacturing facility and is to climb up more and more.

For Prof. Haslam, Ÿnsect is an example of a major problem in Europe. “Ÿnsect is an investigation into the European recession. We fund the moon. We fund industry. We celebrate pilots. We stop development. Northvolt (a struggling Swedish battery manufacturer), Volocopter (introducing the German taxi, and Lily (failed German taxi company),” he said.

Failure has led to a life search. Hubert himself started it Start a factoryan organization that promotes policies to support industrial start-ups in France – realizing that Europe needs a lot of money to build the next generation of high-tech companies.