July 14, 2015

By Gerelyn Terzo

Insect consumption is common among 80 percent of the world but bugs have largely been blocked in the American diet. The tide, however, seems to be turning, based on evidence of consumer demand and increased venture capital funding raised by the industry.

The U.S. edible insect market is currently worth $20 million, according to data cited by Tiny Farms co-founder Daniel Imrie-Situnayake at Global AgInvesting’s AgTech Week event last month. Tiny farms is focused on growing insects at scale, and Imrie-Situnayake says demand for insect protein appears to be doubling each year.

Market projections suggest 32 percent of Americans between the ages of 30 and 44 years old would be willing to purchase insect products and share those items with their young families, leading to a market size north of $1 billion.

One of the companies that’s poised to benefit from this demand is New York-based Exo, a start-up that makes cricket powder. Crickets are extremely high in protein, comparable to the proteins found in egg whites, and the insects are 20 times more efficient to raise versus cows.

Exo uses cricket powder to make power bars. The process involves treating and grinding the crickets into a powder that’s used as a key ingredient in protein bars. Exo co-founder Greg Sewitz says the fact that it’s a powder helps with the perception of the product. “It separates [crickets] from the image people have in their heads of creepy crawly things and makes [them] seem like normal food ingredient,” he said.

The consumer response for cricket protein bars has been overwhelming, with the company doubling down its production efforts after continually selling out of the product amid demand projections that have been difficult to predict.

“We couldn’t keep the bars in stock. We would make another batch and sell out every time,” said Sewitz. Exo has benefited from an online consumer base that has supported its marketing efforts. “We were taken aback by how enthusiastic the response has been,” he noted. “We thought it was going to be an uphill battle. Online you can find early adopters and evangelists for what we’re doing.”

Now the company is testing out a couple of retail store chains, including Whole Foods and Equinox, and is considering a few more.

Exo was launched on the heels of a Kickstarter program that in 2013 raised $55,000 in less than three days, more than doubling the company’s own expectations. It was at that point the Exo team knew its concept would resonate with American consumers. The investment community has supported the company as well.

AccelFoods, an early stage investment platform for food and beverage startups, selected Exo to participate in its accelerator program. Upon exiting the program, Exo went on to receive an investment from the sponsor firm and named AccelFoods member Lauren Jupiterto its board of directors.

So far, Exo has raised $1.2 million in venture capital funding from investor syndicate Collaborative Fund, Start Garden and angel investor, Tim Ferriss. The capital has been directed toward a combination of working inventory to avoid running out of product, a couple of new hires and some R&D in new flavors.

“We get a ton of inbound interest from investors. Mostly, it breaks down into traditional food industry/consumer packaged-goods investors and then tech investors. So traditional food investors and Silicon Valley investors from individuals [to] venture capitalists,” said Sewitz, adding that it’s too soon for private equity to be involved.

For now, Exo remains focused on using cricket protein to make protein bars, but the product could be used in countless food items. “We don’t think of ourselves as a protein bar company but as a protein company. The protein can really be put into anything,” he said, such as shakes, granola and pancake mix, for instance.

Ultimately Sewitz and the Exo team want a full range of products that use insect protein as a source to achieve the goal of normalizing insects. “The way to do that is always with delicious and healthy products that people choose to eat as opposed to having a gross reflex about,” he said.