How Reality Crushed Ÿnsect, the French Startup That Had Raised Over $600 Million for Breeding Insects

French startup Ÿinsect came to the fore when ‘Iron Man’ star Robert Downey Jr. highlighted its advantages on the Late Show during Super Bowl weekend 2021. Now, nearly four years later, the insect breeding company is placed in judicial liquidation — essentially bankruptcy — for insolvency.

The company’s demise comes as no surprise, as Ÿnsect had struggled for months. However, there are many things that need to be clarified about how a startup can go bankrupt despite raising more than $600 million, including from Downey Jr’s FootPrint Coalition, taxpayers and many others.

Ultimately, Ÿnsect failed to fulfill its ambition “Revolutionize the food chain” with insect-based protein. But don’t be too quick to attribute its failure to the ‘ick’ factor many Westerners feel about bugs. Human food was never her main focus.

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

This indecision extended to the M&A strategy. In 2021, Ÿnsect acquired Protifarm, a Dutch company that breeds mealworms for human food applications, adding a third market to the mix. Even as the company announced the deal, then-CEO Antoine Hubert admissible It would take a few years for human food to account for just 10% to 15% of Ÿnsect’s revenue.

“We continue to see pet food and fish feed being the largest contributors to our revenue in the coming years,” 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 was in desperate need of revenue growth.

And revenue was the problem. According to publicly available data, Ÿnsect’s revenue from its main entity lean to 17.8 million euros in 2021 (about $21 million) — a number that is reportedly inflated by internal transport between subsidiaries. By 2023, the company had posted a net loss of 79.7 million euros ($94 million).

So how did a company with such meager revenue raise over $600 million? The answer wasn’t that campaign-driven cross-funds are paying inflated multiples during the funding frenzy of 2021. Instead, Ÿnsect attracted impact-focused investors like Astanor Ventures and the public investment bank Bpifrance which contributed to a compelling vision of sustainability.

The pitch for them was simple – offering an alternative to resource-intensive proteins like fishmeal and soy. That same thesis also attracted significant capital in competitors such as Better Origin and Innovafeed, and looked promising.

But the vision collided with market reality. Feed is a commodity market driven by price rather than sustainability premiums. In a perfect world, insect protein would be fully circular, with insects feeding on food scraps that would otherwise end up in landfills. But in practice, the production of insects on a factory scale usually ends up supported in grain by-products that are already used as animal feed – meaning insect protein just adds an expensive extra step. For feed, the math just didn’t work.

The insect finally recognized this. Pet food proved to be a different equation: less price-driven than feed and a much better market for insect protein, even with competition from other protein alternatives 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 in energy and raw materials, but also in the cost of capital and debt, we cannot invest a lot of resources in markets that are less rewarding (feed), while you have other markets where there is high demand, good returns and higher margins,” Hubert said at the time.

The 2023 axis for pet food came too late. By then, Ÿnsect had already committed to a huge capital-intensive gamble that would ultimately doom the company. That bet was Ÿnfarm, a “giga factory” in Northern France that the company billed as “the world’s most expensive bug farm.” Built to produce insects at scale, the facility took hundreds of millions in funding — money spent before Ÿnsect had proven its business model or understood the unit’s finances.

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

nsect then closed the manufacturing plant it had acquired from Protifarm and cut jobs. But closing a facility while operating a gigafactory built for the wrong market would not solve the fundamental problem.

For Professor Joe Haslam, who teaches a course on Scaling Up in the MBA Program at IE Business School, “Ÿnsect’s struggles are no mystery and not primarily for insects. They are the result of a mismatch between industry ambitions, capital markets and timing, combined with some execution and strategy choices.”

Just because Ÿnsect failed doesn’t mean the entire insect farming industry is doomed. Competitor Innovafeed is reportedly holds up betterpartly because it started with a smaller production space and is goes up gradually.

For Professor Haslam, Ÿnsect is an example of a wider European problem. “Ÿnsect is a case study in Europe’s scaling vacuum. We fund the moons. 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.

The failure has prompted some soul-searching. Hubert himself co-founder Start the industryan association advocating policies to support French industrial start-ups — a recognition that Europe needs more than just funding to build the next generation of deep-tech companies.