After months of drama, French scaleup Ÿnsect’s saga has still not drawn to an end — and concerns are rising across the sector over the future of the insect protein industry.
The embattled company, which farms and transforms insects into protein ingredients that can be used to create food for animals and humans, filed for insolvency in February after failing to raise fresh cash to scale production at its main plant, Ÿnfarm, in Amiens in northern France.
Since then Ÿnsect has secured a first €10m bridge round followed by another €8.6m bridge announced this week, which it says will keep the company afloat until the end of 2025. The majority of the scaleup’s staff has been laid off (111 employees out of 194 people), and Ÿnsect is rethinking its entire production process based on a new model developed by a partner company based in Germany. The company is still looking for nearly €25m in funding to relaunch its activities.
But whether it successfully turns the business around or not, its slow collapse so far has dealt a significant blow to the insect protein industry. Ÿnsect launched in 2011 and is widely considered a pioneer in the sector; the company raised over $600m in total, making it the best-funded business in the space.
“Investors are asking a lot of questions about the sector in general,” says Xavier Marcenac, the cofounder of Sofia-based insect protein startup Nasekomo.
“If the company that raised the most funds can’t get its factory up and running, then what’s the problem?”
What happened to Ÿnsect?
One of the reasons often put forward for Ÿnsect’s collapse is it tried to scale too fast. The company launched Ÿnfarm in 2020, a hugely ambitious project to build a 45k square metre vertical farm that would eventually produce 200k tonnes of ingredients per year — and a significant jump from Ÿnsect’s 3,5k square metre pilot factory.
At the same time, the company faced the sudden downturn in VC funding just when it needed to secure more capital. While it was able to raise a record-setting $372m Series C in 2020, it hit headwinds a couple of years later.
The company then raised a €160m Series D in 2023 and a €50m extension in 2024, but it wasn’t enough: it still needed another €130m to scale production at Ÿnfarm. Hubert told Sifted at the time that there were “no investors on the market.”
Ÿnsect’s also decided to farm a particular type of insect called mealworm (the larval form of a beetle), which it says has particular nutritional value, but which has a significantly longer development cycle than the black soldier fly used by most other companies in the sector. This posed a “fundamental problem” when attempting to scale up the farming process while driving down costs, says Marcenac.
The promises of insect protein
Corentin Biteau, the cofounder of ONEI, an independent research centre dedicated to insect farming, says the challenges faced by Ÿnsect go beyond company-specific issues.
He points to French startup Agronutris, which farms black soldier flies and runs a 16k square metre production plant, and earlier this year entered ‘safeguarding proceedings’, which occurs when a company is at risk of insolvency.
“They have a different type of insect and a different business model,” Biteau tells Sifted. “It’s a systemic problem.”
Biteau says recent developments have shown insect farming companies are failing to deliver on their promises to create sustainable protein alternatives at a competitive price.
The main market for insect proteins to date is aquaculture, where insect-based ingredients could be used to feed fish, replacing environmentally damaging products like fish-based and soya-based feed. But the cost of insect meal is still significantly higher ($3,800-$6,000 per tonne) compared to fish-based feed ($1,815 per tonne) and soya-based feed ($541 per tonne).
Research carried out by ONEI shows there is little indication that insect feed will become cheaper in the future due to the difficulty of scaling up insect farming, which relies on controlling complex life cycles.
Another challenge is high production costs. While one of the promises of insect farming was to use food waste to feed insects to enable circular production, ONEI has found that the majority of companies in the space, including Ÿnsect, use grain-based byproducts and coproducts from food manufacturing.
“The economical and ecological projections for insect proteins were very optimistic,” says Biteau. “But there is a discrepancy between these promises and what we can observe.”
In a reflection of this, says Biteau, investor interest in the sector is waning. In 2024, global funding for insect protein companies stood at $170m — about a third of the $472m raised in 2022.
Second-mover advantage
Marcenac says that the impact of Ÿnsect’s collapse on fundraising has been significant.
“We are currently fundraising, and we constantly have to explain why Ÿnsect faces challenges, it’s the first question we’re asked before even reading our deck,” he says. “And I know of a few fundraises that were paused because of it.”
Yet the market for insect protein is significant, says Marcenac, with growing interest from some of the largest pet and animal food producers in the world. US food company Cargill and Norwegian aquaculture feed manufacturer Skretting have partnerships with a number of startups in the sector.
A recent report from the European Parliament estimates that by 2030 European insect producers will have reached volumes of 3.1m tonnes.
The challenge is to find the right equation to bring costs down and production up — and given the complexity of insect farming, some say there may be an advantage to being a second mover.
“Many of the first-generation players have done a really good job of building this industry,” says Jarna Hyvönen, the CEO of Finnish insect protein startup Volare. “We can avoid the mistakes of challenges that other companies have faced before.”
Hyvönen says many learnings concern “the physical stuff” — finetuning the process of insect farming to increase reproduction rates while reducing waste.
First movers like Ÿnsect have also laid the regulatory groundwork to enable the sector to emerge.
Ÿnsect cofounder Antoine Hubert created IPIFF in 2015 (the International Platform of Insects for Food and Feed), a non-profit organisation representing insect producers that helped move forward EU legislation on insect-based products, including authorising the use of insect protein for animal feed.
“Now is a great time in the sense that customers are ready to buy, all the legislation is here, basically the market is open,” says Hyvönen.
Read the orginal article: https://sifted.eu/articles/ynsect-collapse-industry-analysis/
