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Japan's insect-material startups attract swarms of investors

Superflies, spiders and worms create organic solutions to sustainability problems

TOKYO -- Watching millions of squirming insect larvae devour animal manure is a stomach-churning experience, but Japanese startup Musca and its investors see money in the maggots.

The young company, established in 2016, aims to use "superflies" to turn a profit turning organic waste into fertilizer and animal feed. It is just one of many startups that are developing insect-based materials to address sustainability issues such as global warming, food security and the ever-rising mountains of plastic waste.

The flies Musca uses to produce its larvae were originally developed by the former Soviet Union for its space research program. The company says they are "extraordinary" in that they grow faster, lay more eggs, and endure extreme conditions. And now that Musca has cross bred its elite charges for more than 1,200 generations, they are hardier than ever.

Generating fertilizer and feed with them is simple: First, a tray is filled with a ton of organic waste and 300 grams of fly eggs. After the larvae hatch, they go to work on the manure, eating organic waste and creating their own waste, which can be used as fertilizer while the protein-rich larvae are ground into animal feed.

Investors are keen on this unique technology. This year, Japan's Shinsei Bank and a number of leading trading houses like Itochu and Marubeni have invested in the company. Although the total amount of investment has not been disclosed, it is believed to be in the hundreds of millions of yen.

Behind this trend is growing investor awareness about companies' approach to sustainability. Investors feel Musca has an edge in this area and that it is well equipped to tackle pressing issues such as food security and global warming.

Compost is typically made by mixing animal waste with vegetable matter, such as rice straw, and composting it for a few months. In contrast, Musca's maggots do their job in about a week. They also produce less than 1% the amount of greenhouse gases that typical composting emits, according to the company, because the larvae break down methane and other harmful gases in the manure.

In addition, using the maggots as animal feed reduces reliance on grain. The Intergovernmental Panel on Climate Change reported last month that grain prices could rise 23% by 2050 due to global warming and extreme weather events.

Musca's investors could see their related businesses benefit. Yasuhiro Narita, an analyst at Nomura Securities, says that Marubeni and Itochu's investments in Musca create synergy with other companies in their portfolios.

Itochu has a tie-up with Thailand's CP Group, which raises chicken, swine and other animals, while Marubeni owns U.S. agriculture company Helena. "If Musca can provide CP Group with flies to process animal waste while selling Helena the fertilizer, it's a win-win for all," said Narita.

The startup has yet to commercially market its feed and fertilizer, making production a top priority. "We plan to build our pilot plant by the end of fiscal 2020," said Musca CEO Ayano Ryugo, explaining that the facility will process between 10 and 30 tons of waste a day. Itochu may invest in the plant.

Expanding into Asia is on the company's horizon, as the booming region requires a sustainable solution to keep up with food production while keeping the environment clean. Ryugo said she has received inquiries from all over Asia, including China, Indonesia, India and Vietnam. "Overseas expansion is within our reach," she said.

Musca has developed a special tray for producing fertilizer and feed from the larvae of exceptionally hardy superflies.

Flies are not the only innovation bug. Inspired by spiders, fiber startup Spiber is looking to spin a fortune by producing strong, eco-friendly synthetic fiber.

Since its founding in 2007, the company has focused on replicating the toughness of spider webs. In 2013, it perfected a technology for mass-producing a synthetic protein -- trademarked Qmonos -- that is based on fibroin, the core element of a spider web.

The company could soon become one of Japan's rare unicorns -- private companies valued at $1 billion or more. Last year it pulled in a 3 billion yen investment from the public-private Cool Japan Fund. Spiber now employs 226 workers and holds 22.4 billion yen of capital.

What has investors excited is that Spiber has reduced production costs of the genetically modified proteins that make up Qmonos to between $40 and $50 per kilogram, a notable achievement since it has been difficult to produce the same amount for less than $100. It would like this to come down considerably to compete with petroleum-based fibers like nylon, which can be made for under $10 per kilogram.

To help cut costs, the company is building a plant in Thailand. Scheduled to go online in 2021, the facility will have an annual production capacity of 500 to 600 tons.

Another insect-focused company is drugmaker Kowa. Working with the National Agriculture and Food Research Organization, the Nagoya-based company has developed technology that allows several hundred meters of ultra-strong bagworm silk to be produced by one larva.

The joint research group said the silk is at least two times more resistant to snapping than garden spider silk, which had been thought to be the toughest natural fiber. Another plus is that bagworm silk is composed of a biodegradable protein.

Bagworm silk is seen as a replacement for synthetic fiber used in clothing fabric and materials to make fiber-reinforced plastic. Studies by the group indicate that bagworm-silk material strengthens and lightens the finished plastic.The group plans to mass-produce the silk.

Noriaki Oba, an expert on the insect-material sector, says that maintaining a good corporate image is driving investment in bug-based businesses. "Investing in insect startups improves corporate brand value," said Oba, referring to investing in emerging bioeconomy businesses.

Oba added that "insect startups as an investment target are on par with companies involved in artificial intelligence or the internet of things."

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