Insects are attracting more and more attention. In 2020, startups working around this space raised more than €500M (notably Ynsect, InnovaFeed and Nasekomo). And then… nothing much happened in 2021. This pause worried some observers as the sales of animal feed were not taking off. However, startups are starting to raise significant amounts of money again since the start of the year:

• This week, Protix, a Dutch startup producing insects for animal and human feed, raised €50M. This funding is especially interesting as Protix is one of the only suppliers for other startups (for humans and petfood)
• Enorm, a Danish startup working on insects for animal feed, raised €50M. The money comes notably from a large cooperative owned by farmers and specialised in farm supplies.

Now that the companies have raised money, started to build their production capabilities, what lays ahead for them?

1 – Conquer America
Compared to other FoodTech ecosystems, insects are a very unique subject as most (if not all) of the leaders are based in Europe. This tends to be accentuated with the latest deals. As each European market is small in size, the startups tend to look beyond the ocean toward the US:

• Ynsect is building a factory in the US
• InnovaFeed just signed a partnership with ADM (a giant food commodity trading company) that goes beyond an existing deal including the construction of the world largest insect farm nearby of ADM’s corn processing plants. Now the deal says that InnovaFeed will supply ADM pet foods division with its insect ingredient.
• Protix wants to use its recent funding to go even beyond and address new markets

2 – Face up regulations and consumer acceptance
Last year, Europe authorised the use of insects to feed pigs and poultry. Some can also be used in animal food.
This regulation is not enforced everywhere in Europe, and in many countries, insects are still something that consumers just don’t want to hear about. A recent survey in the UK showed that only 25% of consumers would be ready to “try” edible insects. If you consider that consumers are much willing to experiment with something when the question is theoretical, we can see that using insects for human consumption is still a fantasy.

3 – Focusing on petfood
If it takes time to enter the animal feed market and if humans are not too keen to consume insects, what market remains? Pets! Petfood is indeed a $95B market with high margins.
In the past week, two startups (from which Protix is the supplier) just raised money for that:

• Tomojo, a French startup raised €3M to grow into retail stores and develop new products
• PetGood, a Swedish startup raised $2.1M to grow beyond Sweden, notably in Australia

Even Ynsect, the startup which has raised the biggest amount of money, is considering this space. It launched a pet food product in the US through a partnership in November.

What remains to be seen is what kind of market share insects can take on animal feed and pet food. These markets are huge and are growing fast. However, they also face competition, notably from entrepreneurs focusing on plant-based alternatives (and vegan petfood). Companies working on insects will certainly need new rounds of money to scale up their productions. And if the markets they address does not match the potential VCs require, they will have to look for it elsewhere. That’s why we can expect some IPOs in the coming 24 months.