Why Insect Protein Startup Beta Hatch is Swapping its Seattle Home Base for a Rural Town in Washington.

Washington-based Beta Hatch recently raised $135,000 as part of its Series A at the annual Flywheel Investment Conference in Wenatchee, Washington. Now in its third year, the conference is focused on bringing people and resources together while supporting entrepreneurs, STEM education, and technology in North Central Washington.

The Wilbur-Ellis backed startup uses a combination of trade secret processes, patent-pending equipment, and superior genetic stock to grow mealworms on an industrial scale with the hopes of disrupting plant and animal nutrition. It’s already raised $4.8 million in grants and investment from companies like Cavallo Ventures, the venture capital arm of Wilbur-Ellis, including a $2.1 million seed round in April 2018.

The FlyWheel win represents huge support from the small community of 110,000 known as ‘The Apple Capital of the World.’ As part of the investment, the Seattle-based startup is packing its bug bags and moving to Wenatchee to take advantage of the lower cost of doing business and a better lifestyle for its employees.

“It’s a really small piece of our Series A but it’s an important piece because it’s from a network of investors whoa re in this more agricultural, rural area that we are moving to,” founder and CEO Virginia Emery told AgFunderNews. “We are basically a manufacturing business in that we manufacture insects. It’s an indoor controlled environment so the cost of the facility is a huge component of our bottom line. Add in labor, paying for our staff, and other components if the business and where we are now is not the most affordable area to be in.”

In Chelan County, where Beta Hatch is gearing up to build its first commercial flagship facility, electricity can be as cheap as 3 cents/kWh and the savings add up considerably. The new facility, which expects to produce one ton of insect biomass daily, will also use waste heat from an adjacent data center to fuel its insect production and to further reduce energy use.

Talent and human capital will be critical as Beta Hatch scales, and the location is key. Beta Hatch’s new home features countless outdoor attractions like skiing and rock climbing. Considering that there are often synergies between outdoor enthusiasts and building a more sustainable food system the move could boost its odds of finding the right talent.

“We’ve found it to be a huge asset in our recruiting. The talent we want to find especially in agriculture is not always used to living in a big city. They are often more accustomed to rural areas. So attracting talent from parts of the Midwest or South into a big giant expensive city is a lot harder compared to a lateral move,” Emery explains. “There is a smaller pool of local talent that we have to think about but it isn’t something we’ve had too much trouble with yet.”

Some of the other benefits Emery and her team are enjoying include faster permitting, a cheaper cost of living, and a smaller community that has been welcoming overall. And compared to large cities where leasing space or inking deals can involve several rounds of red tape, the rural town offers more of a handshake culture.

There are limitations, of course, especially when it comes to tapping investor networks. It’s far easier to drive a few miles for an investor meeting than flying across the country. But an ecosystem can be cultivated anywhere with the right partners involved, which is exactly why Flywheel was created.

Insects have Big Potential for Animal Feed

The idea of farming insects as a source of protein has been a buzzworthy one with splashy headlines positing whether humans would ever be hip to chowing down on cricket protein bars. Social license may still be out of reach for the human food application, but one area where insects are bursting at the seams with potential is animal feed.

“There are quite a few companies, including a huge surge of seed stage startups, but very few can make the transition into being operation and execute at a larger scale. There are some big players that have had a lot of financing but it’s still early in terms of the volume of insect product on the market. There is definitely room for different players in different geographies using different business models,” Emery explains.

Some of the current players in the insect farming space include Canadian outfit Enterra Feed Corporation, which set a record for the largest raise for a bug-based protein company. It’s fast at work constructing three new facilities in Canada and the US.

French operation Ynsect, which set a European record with its $125 million Series C in February 2019. Ÿnsect farms mealworms to produce ingredients for fish feed, pet food, and crop fertilizers in an effort to capture some of the $500 billion animal feed market.

Growing insects for protein is also incredibly challenging by her account. What works well at the lab level and field trial level doesn’t always scale to the standard that a business would need to reach in order to provide a worthwhile volume and profit. It’s not as easy as accidentally cultivating a population of fruit flies on a kitchen counter as some consumers might guess. To provide a sufficient source of feed for livestock Emery is thinking in tonnes of insect biomass.

Despite some of the scaling challenges, and the higher cost of this still niche product, the natural source of protein has major potential to address issues in the poultry and aquaculture space as consumers demand more sustainable sources of feed and as protein consumption increases.

“It’s such a new industry with no existing supply chain or genetic stock. You can’t go to a feed producer and buy insect feed. Every company is having to do a lot of things themselves unlike a large established supply chain,” she explains. “But if you can produce a large insect biomass and sell it at a cost that competes with other ingredients then there’s an infinite opportunity.”