How reality crushed Ÿnsect, the French startup that raised more than $600 million for insect breeding

French start-up Ÿinsect was thrust into the spotlight when Iron Man star Robert Downey Jr. extolled his merits on the Late Show during Super Bowl Weekend 2021. Now, nearly four years later, the insect breeding company has been placed in judicial liquidation — essentially bankruptcy — for insolvency.

The company’s demise is hardly a surprise, as Ÿnsect had been struggling for months. Still, there’s a lot to uncover about how a startup can go bankrupt despite raising more than $600 million, including from Downey Jr. FootPrint Coalitiontaxpayers and many others.

Ultimately, Ÿnsect failed to fulfill its ambition of “revolutionize the food chain” with insect-based proteins. But don’t be too quick to attribute its failure to the “nasty” factor that many Westerners feel about bugs. Human food has never been at the center of our concerns.

Instead, Ÿnsect focused on producing insect proteins for animal feed and pet food, two markets with very different economics and margins that the company never really chose between.

This indecision has extended to its mergers and acquisitions strategy. In 2021, Ÿnsect acquired Protifarm, a Dutch company breeding mealworms for human food applications, adding a third market to the mix. Even as the company announced the deal, then-CEO Antoine Hubert admitted it would take a few years for human food to represent only 10 to 15% of Ÿnsect’s revenue.

“We believe that pet food and fish food will continue to represent the largest contribution to our revenues in the years to come,” Hubert said 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 desperately needed revenue growth.

And revenue was the problem. According to publicly available data, Ÿnsect’s revenue from its main entity sharp to 17.8 million euros in 2021 (around $21 million) — a figure that would have been inflated by internal transfers between subsidiaries. By 2023, the company had accumulated a net loss of 79.7 million euros ($94 million).

So how did a company with such meager revenue manage to raise over $600 million? The answer wasn’t trendy crossover funds paying out ambitious multiples during the 2021 funding frenzy. Instead, Ÿnsect attracted impact-focused investors like Astanor Ventures and a public investment bank. Bpifrance which has embraced a compelling vision of sustainability.

His argument was simple: to offer an alternative to resource-intensive proteins like fishmeal and soy. This same thesis has also attracted significant capital to competitors like Best origin And Innovafeedand it looked promising.

But this vision clashed with market reality. Animal feed is a commodity market driven by prices, not sustainability premiums. In a perfect world, insect proteins would be entirely circular, with insects feeding on food waste that would otherwise go into landfills. But in practice, insect production on an industrial scale usually ends up count on grain byproducts that are already usable as animal feed – meaning insect proteins just add an expensive extra step. For animal feed, the math just didn’t work.

Ÿnsect finally recognized this. Pet food has proven to be a different equation: it is less price dependent than animal food and is a much better market for insect protein, even with competition from other alternative proteins such as lab-grown meat. By 2023, the company refocused its strategy in pet food and other higher-margin segments, with Hubert citing broader economic pressures.

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

The 2023 shift toward pet food has come too late. By then, Ÿnsect had already engaged in a massive, capital-intensive gamble that would ultimately doom the company. That bet was Ÿnfarm, a “gigafactory” located in northern France, which the company called “the best factory in the world.” most expensive insect farm.” Built for large-scale insect production, the facility consumed hundreds of millions of dollars in funding – money spent before Ÿnsect had proven its business model or understood the economics of its unit.

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

Ÿnsect then closed the production plant it had acquired from Protifarm and cut jobs. But closing a factory while operating a gigantic factory built for the wrong market could not solve the fundamental problem.

For Professor Joe Haslam, who teaches a course on Scaling Up in the IE Business School MBA program, “Ÿnsect’s struggles are not a mystery and are not primarily about insects. They are the result of a mismatch between industrial ambition, capital markets and timing, compounded by certain choices of execution and strategy.”

The fact that Ÿnsect failed does not mean that the entire insect breeding industry is doomed. The competitor Innovafeed is would have resisted betterpartly because it started with a smaller production site and it rise in power gradually.

For Professor Haslam, Ÿnsect illustrates a wider European problem. “Ÿnsect is a case study in Europe’s scale gap. We fund moon projects. We underfund factories. We celebrate pilots. We abandon industrialization. See Northvolt [a struggling Swedish battery maker], Volocopter [a German air taxi startup, and Lilium [a failed Germany flying taxi company]“, he said.

This failure gave rise to a questioning. Hubert himself co-founded Start the industryan association that advocates for policies to support French industrial startups – a recognition that Europe needs more than just funding to build the next generation of high-tech companies.