Garnering much attention these days, is the edible insect (EI) market worth the hype, from a financial perspective? You see this emerging market gaining momentum as reported by Bloomberg, Fortune, the LA Times and TED talks. Still, very few capital has circulated. Aside from the yuck factor, there is a problem with sales records and market surveys. But we got some information here, from business angels as well as market analysts.

Distribution for the edible insect market has 3 categories: insect farming, food processing and insect retail. Research firm Global Market insight (GMI) states insect farms will have a strong leverage. As the market matures, farms can still play a strong role but most likely the processing plants and end product will share a stronger leverage. Akiva Katz, Managing Director at Leopard Ventures, agrees, adding farming and processing plants will have a stronger position in the distribution channel. Indeed, both are able to recover their cost while earning strong profits before retail reaches the same success. Most farms tend to be small, independent and not automated. Instead, the biggest EI farm in the world, the Canadian Entomo Farm, and some Chinese factory farms are trying to industrialize processes.

Some investors, like Katz, believe insect-based powder will be more attractive because it’s versatile and can be sold to other companies. There are more opportunities for bug flours in the market. Important to note, farms and wholesale buyers should also work more closely. Combined, this should offset high prices.

As far as retail, bugs are now sold mostly through ecommerce. For now, without sales record, and the proof that the bug packages can move fast, the retailers seem not willing to take the risk of occupying valuable space on the shelves. At the same time, is the online shop the right place for insects as food? Consumers may need the right context and the comfort of a place they trust and consider safe, like a brick-and-mortar environment, to buy something as different as bugs.

According to the market analysis from GMI, the market looks financially promising with 2015’s revenue being over USD 33 mn, a 40 percent CAGR expected the following years. The global revenue is forecast to exceed USD 522 mn by 2023 according to GMI. In the U.S., around the same time, revenue is expected to exceed USD 50 mn.

Another research firm, Arcluster, expects a much bigger growth, concluding the global bug market will reach USD 1.5 bn by 2021. Persistence Market Research (PMR) weighs in, anticipating globally the forecast to be USD 722.9 mn. They also predict between 2016 and 2024, Europe with 7.3 percent and North America with 6.9 percent will be the highest CAGR.

Then is it the time for investors to put money in it? For now, only a few insect startups have raised significant amount of money. Some tried the crowdfunding way, for example Six Foods, which raised USD 70,000, and Chapul (energy bars) which received USD 16,000 (but also USD 50,000 at Shark Tank).

And some got the support of venture capitalists, as in the case of Tiny Farms, cricket farming in California, and is known to have received funding from different sources, including Investors Circle, Drew Fink and Arielle Zuckerberg, sister of the Facebook founder. The amount is undisclosed. And of course the richest one, Exo Protein, thanks to the USD 4 mn received in a Series investment round.

But for some VCs it might be early. ‘New Edible insect businesses are a bit ahead of their timing’ is the common sentiment, mentions Justas Rinkevicius Co-founder at the British food accelerator Cinnamon Bridge. He recognizes, entomophagy is a “radical approach” in response to the predicted animal-protein shortage. “The ‘Fear factor’ feeling puts edible insect start-up’s in highly niche category and ‘niche’ is not the word that investors want to hear.  Having said that, we see that numbers of edible insect start-ups applying for our acceleration program doubled since the last year. It gives an indication that the consumers are trying to fill in the gap in the market themselves and all it takes now is for one of the rock star businesses as Exo or Tiny Farms to reach the right scale in order to accelerate investors trust in funding edible insect suppliers globally.”

Katz advises a better strategy for entering this market is by starting with insects as food for pets or animal feed before moving to humans. There is less “yuck factor” involved and the benefits are equally nutritional.

Arcluster’s research conveys the key market may be powder/flour, such as cricket flour. It is fast growing today and set to grow 30 times over the next 5 years. As the future of food meets food tech, this market will introduce a more efficient source of protein and impressive nutritional profile for humans and pets alike.

Many scholars and the UN FAO agree the human population will not be supported by the current food chain habits and traditional protein sources. Indisputably many studies show edible insects are not just another alternative way of eating or fad. “The growth of alternative proteins in undeniable, however there’s still a hesitation around insects as food in the U.S.,” said Douglas Raggio, Managing Director of Gastronome Ventures. “Perhaps a branding effort is in order with a focus on the benefits and not simply that it’s derived from insects would benefit the entire category… take a page from the wine and seafood playbook.”

Consumer are slowly becoming aware of bugs as food, thanks to the social media buzz and the large amount of press articles. “I looked at the alternative protein space, especially the insect based, and there is a clear argument for it. The key question is who can break through the consumer mental barrier. I think it will happen, but it will take time and resources” Erich Sieber, Partner at inventages, agrees this is doable but probably a long process.

Although some countries are not following that resolution, like the UK, The Netherlands and Belgium, the European Union decision to allow edible insects from January 2018 is slowing down the development of the market.

Still, “there is an observable rise in the importance of alternative protein that drives improved and sustainable nutrition and edible insects punches above its weight in this category”, says Arun Nirmal, Research Director at Arcluster.

Lux Research forecasts go in the same direction. They predicted the alternative protein sources potentially claiming up to a third of the protein market by 2054. The edible insect industry development might be slow, but it will be big.

ARTICLE BY MASSIMO REVERBERI ORIGINALLY PUBLISHED BY FOOD NAVIGATOR (August 17, 2016)