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

French startup Ÿnsect was thrust into the spotlight during Super Bowl weekend 2021 when “Iron Man” star Robert Downey Jr. touted the company’s benefits on The Late Show. Now, almost four years later, the insect farming company is in judicial liquidation due to insolvent debts, meaning it is effectively bankrupt.

Ÿnsect had been struggling for months, so its demise is not surprising. Still, there’s a lot to learn about how the startup went bankrupt despite raising more than $600 million from Downey Jr.’s Footprint Coalition, taxpayers, and many others.

In the end, Ÿnsect was unable to achieve its ambition to “revolutionize the food chain” with insect-based proteins. But don’t be too quick to attribute that failure to the “nasty” factor that many Westerners feel about bugs. Human food was not its central focus.

Instead, Ÿnsect focused on producing insect protein for animal feed and pet food. The economics and profit margins of these two markets were so different that the company did not choose between them.

This indecision also extended to M&A strategy. In 2021, Ÿnsect added a third market with the acquisition of Protifarm, a Dutch company that breeds mealworms for human consumption. Even as the company announced the deal, then-CEO Antoine Hubert acknowledged that it would be several years before human food accounted for just 10% to 15% of Shunsekt’s revenue.

“We believe that pet food and fish feed will continue to be the largest contributor to our revenues for years to come,” Hubert declared at the time. In other words, Ÿnsect acquired a company in a market segment that would remain marginal for years, at a time when startups desperately needed revenue growth.

And the problem was income. According to publicly available data, Ÿnsect’s main body revenue peaked at 17.8 million euros (approximately $21 million) in 2021, but this figure was reportedly inflated by internal transfers between subsidiaries. The company posted a net loss of 79.7 million euros ($94 million) through 2023.

So how did a company with such poor returns raise more than $600 million? The answer wasn’t some hype-fueled crossover fund paying out ambitious multiples during the fundraising frenzy of 2021. Instead, Ÿnsect attracted impact-focused investors like Astanor Ventures and public investment bank Bpifrance, who bought into its compelling sustainability vision.

Their pitch was simple: provide an alternative to resource-intensive proteins like fishmeal and soybeans. The same theory looked promising, attracting significant capital for competitors like Better Origin and Innovafeed.

But that vision collided with market reality. Animal feed is a commodity market driven by price, not sustainability premiums. In a perfect world, insect proteins would be perfectly circular, allowing food waste sent to landfills to be used as food for insects. In practice, however, factory-scale insect production typically relies on grain by-products that can already be used as animal feed. In short, insect protein just adds an expensive extra step. When it came to animal feed, the math simply didn’t work out.

Ÿnsect finally realized this. It turns out pet food is a different equation. Pet food is less price-sensitive than animal feed and is a much better market for insect protein, despite competition from other alternative proteins such as lab-grown meat. Hubert cited broader economic pressures that led the company to refocus its strategy on pet food and other high-margin areas by 2023.

“In an environment of not only energy and raw material inflation, but also capital cost and debt inflation, we cannot afford to invest large amounts of resources in the lowest-rewarding market (livestock feed) while there are other markets with high demand, high returns, and high margins,” Hubert said at the time.

It was too late to turn to pet food in 2023. By then, Ÿnsect was already making a large, capital-intensive bet that would ultimately destroy the company. Its bet was on Ÿnfarm, a “gigafactory” in northern France that the company touts as “the world’s most expensive bug farm.” The facility, built to produce insects on a large scale, cost hundreds of millions of dollars. That money was spent before Ÿnsect had proven its business model or understood its unit economics.

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

Subsequently, Ÿnsect closed the production plant it acquired from Protifarm and cut jobs. But closing one facility while operating a giant factory built for the wrong market won’t solve the underlying problem.

Professor Joe Haslam, who teaches a scale-up course in IE Business School’s MBA program, said: “Shunsect’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 execution and strategic choices.”

The fact that Ÿnsect has failed does not mean that the entire insect farming sector is doomed. Competitor Innovafeed is reportedly holding up better, in part because it started with smaller production sites and has scaled up gradually.

For Professor Haslam, Shunsect is an example of a broader European problem. “Ÿnsect is a case study on Europe’s scale-up gap. We fund moonshots. 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 prompted some soul-searching. Hubert himself co-founded Start Industrie, an organization that advocates for policies to support industrial start-ups in France. This is due to the recognition that Europe needs more than just capital to build the next generation of deep tech companies.