'Darkest before the light': These investors think AI can lift VC out of its consumer tech slump

The landscape of consumer technology investment is experiencing a notable shift, with some venture capitalists (VCs) betting that artificial intelligence (AI) could reignite interest in the sector. After a significant downturn in consumer tech funding over the past four years, a determined group of investors is looking to capitalize on AI's potential to transform consumer-focused startups. The decline in consumer tech investment was stark, particularly following the boom and bust cycle of the early 2020s. Many VCs pivoted away from consumer ventures, opting instead to support businesses with stable revenues, especially those aligned with the AI surge. However, a growing number of investors are optimistic that AI innovations will create new opportunities for consumer startups. Nicole Quinn of Lightspeed Venture Partners expressed this sentiment in a recent post, stating, "It's always darkest before the light and the pendulum for consumer is now swinging back, due to AI." Some investors are seizing the moment to invest in consumer tech, viewing the current market as an opportunity to 'buy the dip' while others remain hesitant. Mercedes Bent, who recently left her position at Lightspeed to co-found Premise Venture Partners with Vanessa Larco, is among those who believe that consumer investment is being overlooked. She argues that the current aversion to consumer tech investments is a classic case of loss aversion, potentially creating opportunities for those willing to invest now. In addition to Premise, other consumer-focused funds like Hobart Ventures and Parable have emerged in the last year, signaling a renewed interest in the sector. Despite the optimism, challenges persist. According to Silicon Valley Bank, consumer-focused VC funding hit a seven-year low in 2024, totaling approximately $9 billion compared to $65 billion in 2021. The first quarter of 2025 also saw a 47% drop in funding for consumer startups listed on Carta, indicating a stabilization at a notably lower level than in previous years. Some high-profile consumer startups, like Clubhouse, have experienced dramatic declines in popularity, highlighting the risks associated with consumer tech investments. Nevertheless, investors are hopeful that AI could usher in new business models for consumer tech, enabling rapid growth in ways previously thought impossible. Olivia Moore from Andreessen Horowitz noted that this shift could allow consumer companies to scale quickly, transforming their revenue potential in months instead of decades. While some remain skeptical, viewing the dominance of Big Tech as a formidable barrier, others believe that AI can change user behaviors and monetization strategies in consumer tech. The potential for user engagement through AI-driven platforms could redefine how consumer startups operate and succeed. Subscription models are becoming more commonplace, with many AI startups adopting monthly fees to create predictable revenue streams. For instance, Rosebud, an AI journaling tool, offers premium features for a monthly subscription. As the market evolves, experts anticipate that more consumer tech companies will diversify their offerings, possibly integrating advertising into their business models as AI platforms like OpenAI develop further. Investments in AI assistants have surged, with consumer-focused startups raising substantial amounts in funding. For example, Granola, an AI meeting assistant, raised $43 million recently. The landscape for consumer AI products is expected to grow rapidly, encompassing various sectors from healthcare to entertainment. Despite the challenges, the potential rewards for successful consumer startups are immense. Investors are acutely aware of the risks but are also excited about the opportunity to tap into vast consumer markets. As the sector navigates its way through these changes, the future of consumer tech could very well hinge on the successful integration of AI.