How reality crushed Ÿnsect, the French startup that had raised over $600M for insect farming

French startup Ÿect “Iron Man” star Robert Downey Jr. has stepped into the spotlight. It is described by its advantages on the “Late Show” during Super Bowl Weekend 2021. Now, nearly four years later, the insect breeding company Placed under judicial liquidation -Basically bankruptcy – for insolvency.

The company’s demise was not surprising, as Ÿnsect had been under siege for several months. However, there is still a lot to be unpacked about how a startup could go bankrupt despite raising more than $600 million, including from Downey Jr.’s FootPrint Alliance, taxpayers, and many others.

In the end, the insects failed to achieve their ambition “Revolutionizing the food chain” With insect-based protein. But do not rush to attribute its failure to the bad factor that many Westerners feel about mistakes. Human food was never his primary focus.

Instead, Ÿnsect focused on producing insect protein for animal feed and pet food, two markets with very different economics and profit margins and the company never chose to choose between them.

This reluctance extended to its merger and acquisition strategy. In 2021, Ÿnsect acquired Protifarm, a Dutch company that breeds mealworms for human food applications, adding a third market to the mix. Even when the company announced the deal, then-CEO Antoine Hubert made the announcement I confess It will take two years for human food to account for only 10% to 15% of Ÿnsect’s revenue.

“We continue to see pet food and fish feed as the largest contributor to our revenue in the coming years,” Hubert announced at the time. In other words, Ÿnsect was acquiring a company in a market segment that would remain marginal for years — at a time when the startup was desperate for revenue growth.

Revenue was the problem. According to publicly available data, Ÿnsect’s revenues from its main entity He reached his peak by €17.8 million in 2021 (about $21 million) – a figure said to have been inflated Internal transfers Between subsidiaries. By 2023, the company had incurred a net loss of 79.7 million euros ($94 million).

So how did a company with little revenue raise more than $600 million? The answer wasn’t hype-driven cross-funds paying ambitious multiples during the funding frenzy of 2021. Instead, Ÿnsect attracted impact-focused investors like Astanor Ventures and Public Investment Bank BP France That bought a compelling vision of sustainability.

Its pitch to them was simple, offering an alternative to resource-intensive proteins like fishmeal and soybeans. This same thesis had also attracted significant capital for competitors like Better Origin and Innovafeed, and looked promising.

But the vision collided with the reality of the market. Animal feed is a commodity market driven by price, not sustainability premiums. In an ideal world, insect protein would be completely circular, as insects feed on food waste that would otherwise go to a landfill. But in practice, insect production usually ends at the factory level Accreditation On grain by-products that can already be used as animal feed, which means insect protein adds an extra expensive step. As for animal nutrition, the calculations simply didn’t work.

The insects eventually realized this. Pet food has proven to be a different equation: it is less price-limiting than animal feed and a much better market for insect protein, even with competition from other alternative proteins such as Laboratory-grown meat. By 2023, the company It refocused its strategy On pet food and other higher-margin sectors, Hubert pointed to broader economic pressures.

“In an environment where there is inflation in energy and raw materials, but also in the cost of capital and debt, we cannot afford to invest large amounts of resources in less profitable markets (animal feed), while you have other markets where there is a lot of demand, good returns and higher margins,” Hubert said at the time.

The 2023 pivot to pet food has come too late. By then, Ÿnsect had already committed to a huge, capital-intensive bet that would ultimately destroy the company. That bet was Ÿnfarm, a “giga factory” in northern France, which the company described as “the most expensive insect farm in the world.” The facility, set up to mass-produce insects, took hundreds of millions in funding, money spent before Ÿnsect had proven its business model or figured out its unit economics.

To oversee the launch of Ÿnfarm, Ÿnsect has appointed Shankar Krishnamurthy, a former executive at French energy giant Engie. When this move into pet food failed to save the company, Krishnamurthy replaced Hubert as CEO.

Ÿnsect then closed the production plant it had acquired from Protifarm and cut jobs. But closing a single facility while operating a huge plant designed for the wrong market cannot solve the underlying problem.

“The struggles insects face are neither a mystery nor primarily about insects,” says Professor Joe Haslam, who teaches a course on scaling up the MBA program at IE Business School. “They are the result of a mismatch between industrial ambition, capital markets, and timing, exacerbated by certain implementation and strategic choices.”

The fact that insects fail does not mean that the entire insect farming sector is doomed to failure. Innovafeed’s competitor is It is said to hold up betterpartly because it started with a smaller production site intensification gradually.

For Professor Haslam, insects represent a broader European problem. “The Bug is a case study in Europe’s expansion gap. We fund moon projects. We underfund factories. We celebrate pilots. We abandon manufacturing. See Northvolt [a struggling Swedish battery maker]Volocopter [a German air taxi startup]And Laila [a failed German flying taxi company]He said.

The failure prompted some soul-searching. Hubert himself co-founded it Start the industryIt is an association that advocates for policies to support French industrial start-ups – an acknowledgment that Europe needs more than just funding to build the next generation of deep-tech companies.