The rumours on the death of consumer startups have been greatly exaggerated, it seems. Enterprise seems to be all the rage for VC investors. So much so, that in fact, that only 7.1% of all venture capital investment in 2023 went to consumer companies in the US, according to Carta. Less than half of the amount invested in consumer in 2019 (14.3%).
High profile failures of consumer companies, like Peloton, which fell from grace following a meteoric rise during the pandemic, Allbirds, the sneaker company that lost 98% of its value in the public market, Fast’s grocery delivery which shut down after raising $120M in capital, didn’t help the case for consumer businesses. However, entrepreneurs have never really stopped building new consumer experiences and technology (in particular Generative AI) is unlocking a new wave of innovation in consumer startups. But are investors paying attention? New data suggests they are.
Winds of change for consumer investing
We live in a consumer economy: many of us take Ubers, order food on Deliveroo, listen to music on Spotify, search on Google and overuse our iPhones. In fact, consumer spending accounts of two thirds of the US GDP. But consumer investing has fallen out of favour for what investors intuitively feel is safer: B2B (and within that primarily enterprise SaaS).
A recent report by Forerunner ventures comparing outcomes in consumer (B2C and B2B2C) startups vs. enterprise startups now shed some interesting light on the differences in performance between the two. It analysed 12,000 venture backed companies that raised a series B since 2010 and categorised 7,800 of them as B2C or B2B.
B2C is defined a company where the individual pays for the product (consumer paid) or when the company’s revenue relies on consumer spend, behaviour or engagement (consumer-driven). Below are a few examples to put things in context.
The findings are surprising. When analysed, consumer companies are more likely to go public if they reach early scale and raise a series B. Also, consumer companies go public at a 13% higher rate, their IPOs tend to be larger, and they offer better growth rates and profit margins at IPO.
Another surprising finding by Forerunner is that 62% of consumer companies that went public, exceeded the ‘Rule of 40‘ – the sum of their revenue growth rate and profit margins were above 40%.
Ycombinator, which is in many ways a barometer for ‘what’s hot’ in the startup market, already observed the emergence of consumer startups in December of last year.
And Andreessen Horowitz, perhaps the biggest trend-setter fund in Silicon Valley, is seeing a lot of value in re-inventing consumer experiences with generative AI. Categories like AI companions, productivity enhancers, and new creative platforms, are being launched with significant user engagement.
Big markets up for grabs in consumer (and shameless plug)
At Remagine Ventures, our thesis from inception has been to invest where consumers spend their time and money, and the technologies behind the major consumer trends. Our coverages ranges from gaming, music, entertainment tech to consumer health, fintech, education and more. AI has the potential to dramatically disrupt these sectors as we covered over time on VC Cafe (see examples in gaming, search, media, etc)
For example, how will shopping evolve when AI agents can do the research for us and find the best deal? how does dating go beyond a profile picture and shallow chat to find a soulmate? and how will content creation, distribution and monetisation change in a world where AI enables anyone to become a content creator? Our investments in Hour One, Munch, Vault AI, Kwakwa etc tell that story.
We’ve been building our portfolio in this space since 2018 and are excited to continue investing in the innovators making a better future for consumers. If you’re an Israeli or European entrepreneur in the early stages of building the future of this space, please get in touch.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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