Consumer tech investing has fallen out of fashion in the last four years. A small but vocal cohort of VCs is rallying to bring it back.

The VC boom and subsequent bust of the early 2020s hit consumer startups particularly hard. Many investors, burned by the crash, set their focus on startups serving businesses that could deliver reliable contract-based revenue — and, in the past two years, that could more readily capitalize on venture’s AI gold rush.

But other VCs believe AI will change the game for startups selling to consumers, too.

“It’s always darkest before the light and the pendulum for consumer is now swinging back, due to AI,” said Nicole Quinn, a consumer-focused VC at Lightspeed Venture Partners, in an X post in January.

The especially bullish investors are doubling down on consumer to “buy the dip” as other VCs stay away. Mercedes Bent stepped down from her role at Lightspeed Venture Partners earlier this year to raise money for a firm she’s launching alongside former New Enterprise Associates partner Vanessa Larco, called Premise Venture Partners, which will invest exclusively in consumer startups.

“Everyone’s moving away from consumer investing at the wrong time. It’s classic loss aversion,” she told Business Insider. In Bent’s view, their loss is her gain.

In addition to Premise, consumer-focused funds like Hobart Ventures (founded by former Raya and Dispo exec TJ Taylor) and Parable (founded by ex-A16z partner Anne Lee Skates) have launched in the past year. Other VC mainstays, like Menlo Ventures, Maveron Ventures, or Bessemer Venture Partners, are continuing to place bets in the category.

There’s no shortage of hurdles in their path.

According to Silicon Valley Bank, the amount closed by VC funds listing consumer as a core focus hit a seven-year low in 2024, totalling about $9 billion, compared to $65 billion in 2021. Meanwhile, consumer startups on Carta raised 47% less cash in the first quarter of 2025, according to Carta, which said in a June report that the sector appears to be stabilizing at a “new normal” for funding that’s significantly down from 2019 to 2022.

Consumer startups also risk flaming out after a moment in the spotlight. Look no further than 2021 breakout social network Clubhouse, which raised over $100 million from VCs and received a $4 billion valuation, only to fizzle in popularity after companies like Twitter (now X) built copycats. Some consumer startups, like TikTok rival Flip, end up shutting down.

But investors, including at mega-firms like Andreessen Horowitz, increasingly think AI could usher in new consumer business models that enable unprecedented growth.

“This shift allows consumer companies to scale in ways that were once impossible — and to become big businesses (on a revenue basis) in months, not decades,” said Olivia Moore, an A16z partner focused on AI investments, in a September blog post.

Consumer’s big money question

Some remain skeptical about how consumer tech startups can make money as Big Tech giants dominate.

Brian Sugar, the cofounder of media brand PopSugar and founding partner of Sugar Capital, doesn’t think the industry has figured out how to solve the monetization and distribution problems created by the last consumer tech boom.

“If you have a consumer hit like ChatGPT, which is truly a new thing, you can get that level of traction,” Sugar told Business Insider. “But I don’t think AI all of a sudden changes what’s happened in the consumer technology landscape.”

Blockbuster AI tools have captured the zeitgeist, from OpenAI’s ChatGPT to Anthropic’s Claude, but many of these companies appear to rely more heavily on revenue from other businesses rather than subscriptions from individual users, with only about 3% of consumers paying to use premium AI services, according to Menlo Ventures.

But investors buying into consumer tech are betting that LLMs will bring the same kind of shift to user behavior, and thus to monetization opportunities, that the iPhone brought in the late 2000s.

If search traffic moves from Google to ChatGPT, consumer tech companies may no longer need to optimize for Google’s algorithms, but for OpenAI’s.

“Today, I’m telling all of my companies, figure out distribution via ChatGPT, Claude, Perplexity. They’re not optimized yet — those companies haven’t even begun to take a profit from the distribution they’re creating. But one day they will, sometime in the next five years,” Bent said. “If you can’t be the entity that controls the distribution, then optimize your customer acquisition costs by figuring out what’s the latest up-and-coming platform.”

Subscription models have become familiar to users, too. Half of Americans online have at least four paid monthly subscriptions, according to Forrester. Consumer AI startups are catching on and charging monthly for their products to secure more predictable revenue. Some are even implementing usage-based models, with higher costs or the option to buy additional “credits” for more active users.

For instance, Rosebud, an AI journaling startup backed by Bessemer Venture Partners, is free to use but charges users a $13 a month subscription fee for its more in-depth AI tools, like long-term memory or voice transcription. Image and video generator Krea, backed by A16z, offers plans from $10 to $60 a month based on the number of tasks users want the model to perform, and the option to buy additional credits exceeding those tasks.

Natalie Dillon, a partner at consumer-only VC firm Maveron, said she expects more consumer tech companies to diversify their businesses to take advantage of new advertising options that’ll appear if and when OpenAI and its LLM competitors begin running ads for free users.

“Right now, a lot of these businesses are very subscription-based because that’s a model that is comfortable with consumers today. I think over time we’ll actually see more ad-driven startups, but that market and that network just haven’t been built yet,” she said.

Investors are oggling white spaces in consumer AI

Capturing consumers’ attention is harder than ever, but startups may yet be able to attract fresh eyes — and checks — in certain segments. Consumer startups peddling AI assistants, for example, raised a total of $1.3 billion from US-based VCs in 2024, according to Silicon Valley Bank.

Granola, an AI assistant that takes notes in meetings, raised $43 million in May. Alta, an AI assistant that helps consumers choose what to wear, announced an $11 million seed fundraise in June.

Amy Wu Martin, a partner at Menlo Ventures (which led Alta’s seed round), said she anticipates that a “rich ecosystem of specialized consumer AI products” across categories like healthcare, shopping, and entertainment will emerge in the “next couple of years.”

In gaming, startups like Northzone-backed Hidden Door, launched in August, are making fiction interactive with AI. Whoop and Oura, both valued at billions of dollars in their latest fundraises, use AI to track and analyze health and wellness data collected via their wearables. Social networks and dating apps are also leveraging AI and securing early-stage investments or spots in buzzy accelerators like A16z Speedrun, such as dating startup Sitch.

“Every time we’ve had a major enabling technology show up, it’s led to the rise of a new social network dynamic,” said Kent Bennett, a partner at Bessemer Venture Partners.

Not every consumer startup needs AI, however. Sugar said the best-performing consumer company in his portfolio is Locket, a social media app that lets users share photos with their friends and family via a widget on their phones’ home screens. The app, which doesn’t rely on AI, went viral on TikTok in early 2022 and has become especially popular with preteen users, he said.

Each generation tends to stick with the consumer tech platforms they grew up with — Facebook for Gen X, Instagram for millennials, and TikTok for Gen Z, Sugar said. He thinks Gen Alpha, the next generation of consumers, could be up for grabs for the next startup that can capture and retain their attention.

That proposition, while intuitive, comes with plenty of risk. Character AI shows just how fraught such a contest can be. The company, which notched a $2.7 billion licensing-and-acquihire deal with Google last year, has drawn millions of young users to its AI-generated companions. But it’s also come under fire for inadequate safeguards, including a lawsuit that claims one of its chatbots played a role in a teenager’s suicide.

Just this month, the FTC launched an inquiry into companies like Character AI and the impact AI companions are having on children.

“The user-created characters on our site are intended for entertainment and we have prominent disclaimers in every chat to remind users that a character is not a real person and that everything a character says should be treated as fiction,” a spokesperson for Character AI told BI in a statement. They added that the startup has “put a tremendous amount of resources” toward trust and safety.

So, is consumer back?

Dillon said that consumer investing boomerangs in and out of vogue: “We’re in a pattern that we’ve seen before.”

Interest in consumer typically retreats as a result of macroeconomic pressures, she said. When a new technological shift arrives — right now, that’s AI —excitement returns.

Meanwhile, Bennett said he thinks some investors have overcorrected in ditching consumer tech altogether.

“There are enough people who were burned in the last 10 years investing in direct-to-consumer stuff that may have told themselves that consumer stinks,” he said. “There’s a little bit of that hangover from that top-down lesson.”

But when startups do get it right, the potential upside is enormous.

“It’s really hard, but when you hit it, you instantly have access to trillion-dollar markets,” he said. “If you want to win the consumer over as a product, you just have to show up with something that is a miracle.”

An AI startup is coming out of stealth with $15 million in seed funding to make inbound sales more efficient.

Cofounded by CEO David Walker and CTO Zander Pease, Spara — short for sales performance and revenue acceleration — builds conversational AI voice, chat, and email agents for sales teams.

New York City-based Spara greets prospects, qualifies leads, fields questions, and books meetings — automating the work of sales teams. It trains AI models for mid-market and large business clients based on their specific sales processes and brand voices.

Sales stalwarts and startups are increasingly using AI in their field. Spara focuses on inbound sales, when a potential client has already sought out a company.

“Outbound is dead and AI is killing it,” said Walker, adding that the tech has automated cold outreach to the point of saturation.

Walker formerly cofounded and sold real estate startup Triplemint to luxury brokerage The Agency, and he still serves on the board.

“I’m not meant to be an armchair executive; I’m meant to be a builder,” he said.

As for Pease, he served as senior director of product at Hyperscience AI and cofounder of Nomad Health.

Spara’s cofounders refused to pick an idea for six months

Walker and Pease connected in 2023 through a mutual friend, knowing they wanted to start a company, although they didn’t know what yet. They “refused to pick an idea for six months,” Walker said, opting to conduct informational interviews with “really smart people” in the field.

“We talked to over 200 sales leaders and tried to treat them like user interviews,” Pease said. “What are the biggest pain points you have? Where do you think AI is going to change sales?”

These sales leaders kept coming back to the idea that companies will no longer be constrained by human sales teams because of AI.

Spara officially launched in 2024, and many of its investors came from those initial conversations.

The $15 million in funding includes a simple agreement for future equity in February 2024 led by Inspired Capital and a seed in July 2024 led by Radical Ventures.

Other participants included XYZ Ventures, FJ Labs, Remarkable Ventures, and angels like Anthropic’s head of revenue Kate Jensen and OpenAI’s head of strategic accounts James Dyett.

Spara will use the funds for research, development, sales, and marketing, Walker said. Spara has 16 employees — roughly two-thirds in engineering and the rest in sales.

Customers include banking platform Rho, restaurant software company MarketMan, cybersecurity training firm Jericho Security, and rich-text editor TinyMCE.

Google, along with Pennsylvania state officials and business groups, announced the AI Accelerator for Pennsylvania small businesses on September 12, 2025.

The program was introduced at the AI Horizons Summit by Google’s Selin Song, Governor Josh Shapiro, the Pennsylvania Chamber of Commerce, and Team Pennsylvania to provide local businesses with free artificial intelligence resources.

What the AI Accelerator program includes

The program is part of Google’s national AI Works for America initiative and offers Pennsylvania businesses several no-cost resources to improve their AI skills and adopt new tools.

• Live workshops held across the state for hands-on training.
• Self-paced online courses covering AI fundamentals and prompting.
• Google Career Certificates for developing skills in high-demand fields.

Hands-on training through local workshops

A central part of the accelerator is a series of interactive workshops conducted throughout Pennsylvania. A designated Pennsylvania AI Coach leads these sessions in partnership with local community organizations.

The first workshop was held on the day of the announcement for 50 small businesses, providing practical training on how to apply AI.

How to access the training resources

Pennsylvania small businesses and their employees can access the online courses and register for career certificate training in fields like cybersecurity, data analytics, and project management. No prior experience is required for the certificate programs.

Registration is available at grow.google/AIWorksforPA.

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