An agtech startup, as many starry-eyed founders—and jaundiced investors—have learned to their cost, is not a SaaS startup. Whether you’re growing lettuce or insects at scale in a controlled environment, notes Protix cofounder and CEO Kees Aarts, you’re in for a rude awakening if you think you’re going to disrupt established food and feed markets overnight.
“You can’t come in with a Silicon Valley playbook and outcompete [a legacy industry] in three years with growth on an exponential curve,” observes Aarts, who first got into bugs back in 2009, when there was no playbook, and no regulatory framework for large-scale insect farming, and pioneers in the space were effectively building the plane while flying it.
“I see startups being pushed to do things too quickly. There’s a very short-termist mindset because they are raising capital and it’s a case of, ‘For the next raise we need to do this…’ says Aarts. “But you shouldn’t be doing things for the next raise, you should be doing what is needed to build a quality company.”
At Netherlands-based Protix, which spent years refining its technology before opening a large-scale state-of-the art facility in Bergen op Zoom in 2019 (which now processes 14,000 tons ELV/live larvae equivalent per year), the early years were at times “excruciating,” says Aarts, an aerospace engineer and former McKinsey consultant who quit his day job in July 2009 to start breeding bugs full time.
“There were mixed reactions,” he recalls. “Some people thought it was a stupid idea; others thought it was so stupid that it just had to work. In the first six years we had more failures than successes.”
The challenge, he says, is doing this at scale. It’s not difficult to throw some black soldier fly larvae on a pile of waste food and watch them grow, he points out. But “doing it 24/7 when you’re producing more than 10,000 tons on an annual basis reliably and predictably” is a very different proposition.
AgFunderNews (AFN) caught up with Aarts (KA) following Protix’s recent tie up with Tyson Foods to build a large-scale facility in the US to upcycle manufacturing byproduct into insect protein.
Tyson has also taken a minority stake [$60.5m last fall] in Protix, which has raised around €227 million ($246 million) in debt and equity to date from a variety of sources including the European Circular Bioeconomy Fund, BNP Paribas, Aqua Spark and Rabobank.
AFN: Tell us about the genesis of Protix
KA: Our mission was always to create impact at scale, so from day one, we believed there was a logic to serve petfood and animal feed in order to replace ingredients from oceanic sources [e.g., fishmeal, which is widely used in aquaculture as a feed ingredient], and from land production [such as soy, which contributes to deforestation] and to used upcycled feedstocks [the insects eat food and ag waste].
When we first started looking at the space in 2009, there were a couple of companies out there like AgriProtein and Enviroflight and then later on a whole bunch of hobby farmers were triggered to get into insect farming by the godfather of the space, Arnold van Huis at the FAO [which put out an influential report on edible insects in 2013].
For me the motivation was a combination of hobbies, interests, passion about the agrifood space and a drive to innovate. For others, it was more knowledge about agrifood or an extension of a university program.
So I asked my parents for a loan. I’m very grateful for that, and by the way, I’ve since paid them off so I’m really happy about that, and I asked a colleague [from McKinsey] Tarique Arsiwala to join and that was the start of our adventure.
AFN: What bugs do you work with and why?
KA: Black soldier flies are very efficient if you manage the environment, they can eat really fast and really well, but it’s not all about feed conversion rates. Sometimes you can take a lower grade feedstock with a lower conversion rate but it actually adds more value. Their great appeal is that they can eat almost anything, so you don’t have to be too picky about inputs, which matters when you’re trying to build operations in lots of different geographies and markets.
AFN: What is the optimal environment for rearing black soldier fly larvae?
KA: There are two different issues here. What kills them, so how do you ensure they don’t die, and what do they need to thrive?
We learned a lot about biology, but we always approached it from fundamental principles, so what’s the metabolic energy principle that we’re utilizing and what are we optimizing for? It’s a case of continuous improvement. We’re always curious, and we’re constantly pushing the boundaries of understanding, conversion, metabolism, upcycling. I think our secret is the layer of technology upon the layer of operations upon the layer of software enabling us to enhance nature by technology.
AFN: Tell us about your growing pains
KA: In the first six years we had more failures than successes; it was all about learning, trying, testing, and failing hard. We even had a graveyard of failures that we walked by with pride to show that we persevere and progress.
We also went through three company names. Our first name was Keta Biosystems. Little did we know that ‘keta’ also stands for something else, so there were some people who were scratching their heads and asking who are these two young guys starting a business with the word ‘keta’? A couple of years later, we rebranded to Protix Biosystems, and finally just to Protix.
The challenge was always large-scale production. I mean, quite soon, we knew how to breed a colony of flies, produce eggs, rear the larvae, but it’s a very different thing to do that in a 24/7 environment when you’re producing more than 10,000 tons on an annual basis reliably and predictably.
AFN: Does the Silicon Valley playbook fit insect farming?
KA: You can’t come in with a Silicon Valley playbook and outcompete [a legacy industry] in three years with growth on an exponential curve. I think this is a massive flaw in thinking where a lot of vertical farms [in leafy greens] thought they could play although for insects it’s a little bit different. There was no insect industry out there when we started, so we kind of created our own reference and became our own benchmark.
AFN: How automated are your operations and is this key to achieving viable unit economics?
KA: We constantly challenge ourselves about what is the right level of automation and what’s the right level of control? In general, as soon as we think a job is repetitive or that we can control it better, reduce the failure rate, identify outliers, improve the base process and reduce variability, we will automate a process. And so far so good; we’ve been able to increase our production, increase our quality, and lower our costs.
But nobody in Protix will ever say, ‘Yes! We finally did it! We are constantly asking questions.
AFN: What business models make the most sense for large-scale BSFL production?
KA: We’ve explored all kinds of models, so we’ve designed a container that can be placed anywhere in the world. We’ve designed a CapEx solution that can be implemented in the barn of a pig farmer where we would supply the eggs and take up the larvae for processing. We’ve looked at high-intensity controlled environment farming like we do now.
And then you have all kinds of variants to this. Single source, multiple source, co-location [of an insect farming plant next to the source of feedstock]. To be very honest, there will be multiple opportunities and the models will be different in different markets.
AFN: How important are advances in breeding to the insect farming industry?
KA: We have a proprietary genetic program to improve our genetic strains for different applications, so through a unique selection process, we can optimize for certain traits.
AFN: Can you talk about the regulatory framework for insect farming for feed and food?
KA: To start with there was no regulatory framework, so we wrote a paper explaining both the economic and ecological potential and how we believed insects could be farmed in a safe way, and then we proposed a step-by-step approach where in collaboration with agencies at the European level, we would create new legislation [governing the use of insects] for petfood, aquaculture, and livestock. Then for [human] food we argued that the Novel Food Regulation [was the appropriate regulatory mechanism].
AFN: What’s the appeal of edible insects for your customers in petfood and animal feed?
KA: We’re trying to help our customers lower their environmental footprint, so our insect oil has 90% lower CO2 [emissions] and water use than palm oil, while our protein meal has a seven-fold lower carbon footprint than soy protein concentrates and a lower CO2 footprint than fishmeal, which is incredibly hard. And these are not our numbers, these are verified numbers from the Deutsches Institut für Lebensmitteltechnik.
We also help our customers produce better quality, so there are health-promoting benefits so things like improved liver and skin health in salmon, natural behavior improvements in poultry, fur quality increase in certain pets, and we’re only at the beginning of this research so we can work with our customers and keep improving applications.
AFN: What’s the funding environment like now for insect farming?
KA: This is not a software business. It’s about building assets that need to continuously perform for 10-20 years, where quality and constant improvement cycles are more important than quick fixes.
We might not have raised the most capital in this space, but I would argue that we have delivered by far the most capacity, revenue, IP, organizational performance and financial performance [relative to the amount of capital spent].
We’ve proven our technology and operations at scale and we’re really standardizing the design into a unit of operations that can be built anywhere in the world, so we’re now really ready for internationalization.
The question is, are you capable of managing assets, managing supply chains where 20, 30 or 40 trucks drive in and out every day? It’s not my job to raise capital, although it certainly absorbs a part of my time. My task is to convert capital into quality assets, a quality organization and run a solid business.
I see startups being pushed to do things too quickly. There’s a very short-termist mindset because they are raising capital and it’s a case of, ‘For the next raise we need to do this… But you shouldn’t be doing things for the next raise, you should be what is needed to build a quality company. But once you’re in that Silicon Valley playbook, it’s hard to get out.
We will get bigger, but the agrifood system is not really the Silicon Valley winner-takes-all type of industry. It just doesn’t work that way. You need to embed yourself in the ecosystem. You need to become a reliable partner, a predictable partner, a problem-solving partner to customers and ecosystem partners.
AFN: You’ve teamed up with Tyson Foods to build an insect farm in the US. Is this kind of collaboration the likely model for large-scale insect farms going forward?
KA: I think it’s proof that this space is here to stay. Tyson made its own assessments. It did years of research in its own facilities. It produced and bred its own insects and worked with the universities, and ultimately made the decision to partner with us.
So our project teams are working together. We’ve got people from Protix working there and we’ve got people from Tyson being trained here and we’re now zooming in on various sites and permits, so I’m really excited about the progress being made in the US.
Tyson has a massive footprint in the US and we’re going to build multiple facilities. But we’ll start with the first large scale facility [at an as yet undisclosed location] where we’re going to use parts of Tyson’s waste streams. We could use 15-20 different ingredients from their facilities and other bio industrial facilities and agricultural locations but I’m not going to provide specifics at this stage.
Petfood and animal feed companies want to future proof their supply chains and it’s my belief that this will require larger and larger volumes of insect production.
Now value chain partnerships will be necessary and if we want to conquer the US market we’re bound to be much more successful with Tyson, which is constructive, action-oriented, and very supportive.
AFN: How is Protix performing?
KA: For the third year we’re going to produce more than 10,000 tons of live larvae and we passed the $10 million mark in annual revenues a couple of years ago and we’re constantly lowering the cost of production and increasing our gross margin. We’re not sharing our figures but let’s put it this way: we’ve proven we’re a solid company that converts investment capital into value, otherwise, we wouldn’t have been able to secure partnerships that unlock funds to enable us to grow.
We’re selling more than we can produce and we’ve shown a 40-50% year on year volume increase as well as revenue growth each year over the past five years, so I think that’s pretty healthy.
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