Mealworms may be the last critter that comes to mind when you hear the word ‘ranch,’ but Beta Hatch is hoping to change that perception – and a global pandemic presents the perfect opportunity.
“Some of our customers have reported as much as 400% increases in demand for their product,” said Virginia Emery, founder and CEO at the Washington state startup, which supplies insect-derived protein to manufacturers of animal feed.
“Food and agriculture is one of the more recession-proof industries. There have been adjustments in how we eat, but people are still eating and still care about sustainability and the supply chain,” she told AFN.
Beta Hatch has just closed an oversubscribed $9.3 million Series A round co-led by Cavallo Ventures — the VC arm of agribusiness Wilbur-Ellis — and Innova Memphis, a rural business investment company (RBIC) licensed by the US Department of Agriculture. Brighton Jones Investment Partners, AccelR8, and SeaAhead also participated in the round.
It follows Beta Hatch’s “Series A1” raise in May 2020, which netted $3 million from the same co-leads. Emery described that round as “not particularly huge” with intention, given that the startup wants to maintain a “very capital-efficient model that’s smaller scale and more distributed,” she said.
Beta Hatch has built insect-rearing technology that converts organic waste directly into high-value proteins, oils, and nutrients for the poultry and aquaculture industries. It raises yellow mealworms, chosen for their ability to grow readily at scale with minimal labor.
The goal is to offset some of the global demand for animal feed with a more cost-effective and eco-friendly protein source. It sells its insect protein as an ingredient to manufacturers who blend it into existing or new products.
Decentralized production is Beta Hatch’s goal
Beta Hatch focuses on a smaller and more distributed scale of operation, in a hub-and-spoke operating model where hatchery facilities produce eggs and ranching facilities grow product.
“Big, centralized production requires big, centralized offtake – and that’s why we saw so much waste earlier this year because of the shift from restaurant use to a totally different distribution model for some food products,” Emery said.
“Our smaller scale should in many ways reduce the amount of waste that we see in our production because we are more able to closely match supply and demand. We can also be a lot more flexible and adaptable in how we are producing our insects.”
To that end, Beta Hatch recently held a ribbon-cutting ceremony for what will be its 30,000-square feet flagship facility in Cashmere, Washington. The startup is revamping an old juice factory that has been left idle for nearly a decade, according to Emery. This is more challenging than building a custom facility from scratch but falls in line with the startup’s goal of being cost-effective and sustainable.
“We have developed a modular approach to our construction that allows us to leverage old infrastructure and bring the factory jobs back to the community of Cashmere, Washington, which is something we are really excited about,” Emery said.
Innova Memphis, which as an RBIC has to focus a certain percentage of its investment in rural communities, was particularly attracted to this aspect of the project, she added.
It’s not the startup’s first business sustainability move. In 2017 it ditched its Seattle headquarters to relocate to the rural Washington town of Chelan, in an effort to cut down on the costs of being in a big city and to attract a different type of talent. This also facilitated faster permitting, cheaper costs of living for employees, and a smaller, more welcoming community.
Beta Hatch’s existing production venue is powered by waste heat from a neighboring data center, which is also the plan for the new flagship facility, Emery said. The Washington government’s Clean Energy Fund has contributed to the project to help further Beta Hatch’s efforts to repurpose waste heat.
At full capacity, the new location will produce 1 ton of insect protein every day and will be the largest such facility in North America, according to Innova Memphis. It is scheduled to open sometime in 2021.
Are mega-facilities the way to go?
With its modular approach, Beta Hatch appears to be walking the line between large-scale production in a single facility and more decentralized models.
Some startups have opted for the former strategy. In October 2020, France’s Ÿnsect raised $372 million in Series C funding to construct what it claims will be the largest insect farm in the world. It’s also planning to expand into the $40 billion global pet food market.
The same month saw the UK government’s Industrial Strategy Challenge Fund (ISCF) earmark £10 million ($12.9 million) to help build the country’s first large-scale industrial insect farm. London-based Entocycle is tasked with building a facility that can produce millions of insects.
Over in Asia, Vietnam’s Cricket One closed pre-Series A funding last month to build a “full-stack” production chain for cricket-based protein. It currently ships its cricket protein powder to food producers in over 15 countries.
But some insect startups are taking a less centralized, smaller-scale approach. UK-based Better Origin has designed a system built around “distributed” mini insect farms, while Australia’s Goterra — which raised A$8 million ($5.55 million) in Series A funding back in June — disposes agrifood waste on-site using modular insect farms.
In the US there is black soldier fly-focused Grubbly, which is neither building mini-farms nor mega-facilities. Its go-to-market strategy focuses on collaborating with would-be rivals on production and selling direct to consumers via its branded feed product aimed at backyard chicken owners.