The State of Consumer Investing: A Reflection on Three Decades of Market Cycles

By Natalie Dillon & Simran Suri

This is the first of a 2-part series focused on Maveron’s point-of-view on consumer investing. We’ll release the second post on our specific investment themes in 2 weeks, so please tune in for an update!

Over the last year, we have heard and witnessed a troubling but familiar narrative: “consumer VC is dead”….“consumers are in bad shape”…“there are no good opportunities for consumer investors.” We naturally have our biases against this rhetoric at Maveron as a fund that specializes in consumer. Because of this focus, we have a unique vantage point. Since Maveron’s founding twenty-six years ago, we have been deeply embedded with founders and seen them through multiple market cycles.

Consumer VC Is Not Dead

Despite headlines and rhetoric by pundits on social media platforms, consumer venture is not dead. Rather, investors are following the same pattern we’ve observed for the last 30 years, a pattern of retreat, return, retreat, and return. The retreat is often pushed by macro dynamics, and investors are pulled back to consumer investing by technological advancements.

As the internet went mainstream in 2001 and the intersection of technology and consumer businesses exploded, investors flooded the space. But as the Dot-Com Bubble burst, we heard the term “death to consumer” echoed across financial institutions.

In 2008, as the housing market crashed and pulled the rest of the economy along with it, Maveron was told by a well-established Ivy League endowment LP that “there were no more good opportunities in consumer.” Much like the early 2000s, this person was not alone in their chorus of concerns that our financial systems were weak, consumer recovery would not endure, and the opportunities in consumer VC were slim. Yet, technology advancements do not adhere to the drumbeat of Wall Street. The App Store launched in 2008, the iPhone the year before — the dawn of mobile apps that would transform consumer behavior had just begun.

Each market cycle retreat is not necessarily a negative for the consumer venture ecosystem. Each cycle imprints its own learnings to that generation of founders and investors, and those investors that remain and enter while others retreat can be handsomely rewarded. As investors pulled back, we saw many new emerging funds focused on consumer investing come to market.

When reviewing the list of consumer unicorns based in the US, we found that:

• Of the 43 early stage investors who invested in at least 3 consumer unicorns or more, a little over half of these firms were founded in 2008 or later.
• One in three of these firms were founded immediately following the crash in 2008–2010

The 2008 recession resulted in many firms closing or retreating but it also brought about new, talented consumer-minded investors who have played a tremendous role in shaping the ecosystem. Andreessen Horowitz (founded in 2009) took platform teams and content to a new level. 500 Startups (founded in 2010) expanded venture capital resources to new geographies. Many of our trusted co-investors like Lerer Hippeau, Forerunner Ventures, Collaborative Fund, Slow Ventures, BoxGroup and Tuesday Capital, all got their starts in this period.

What’s noteworthy about this current market cycle in consumer investing is that macro data speaks to a more nuanced and stronger consumer health picture than what investors and even consumers themselves perceive.

We’ve seen a few headlines speak to the financial weakness of the consumer in black and white terms, often comparing how consumers are doing today relative to a few years ago. This tells one slice of a bigger story, and a slice that compares a period of unprecedented financial endorphins (zero interest rate environment, stimulus payments, loan forgiveness) to the present, when those advantages have been rolled back. Looking at data from the last decade, the percentage of consumers reporting they are doing financially okay has actually increased by 10% from 62% in 2013 to 72% in 2023.

There are certainly indicators of concerns — personal savings rate below decade average, the dramatic acceleration of credit card delinquency, and the undeniable sense from many consumers that they’re experiencing financial gloom.

Yet, the data points to consumers still spending far more than what top economists predicted. Gross Domestic Product data for the second quarter came out on July 25th and GDP grew 2.8% this quarter versus the 2% economists forecasted, largely driven by consumer spend. This figure is double the GDP growth in the first quarter of the year. Amazon Prime Day saw record spend, with AOV jumping from $54.05 to $57.97 and overall spend hitting $14.2B, up 11% YoY.

The consumer picture is not black and white. Economists are grappling with the growing gap between the economy’s performance and people’s own perceptions of their financial well-being. As we’ve observed over three decades, the consumer is far more resilient than what many give credit to, and consumer technology consistently advances regardless of macro turbulence. So while reports indicate that just 7% of seed capital raised last year went to consumer companies, the smallest share since 2018, and that there was a disappointing drop in consumer companies in YC’s batch, we, Maveron, remain optimistic and steadfast about the future of early stage consumer investing.

The Evolving Definition of Consumer Investing

While the retreat and return market cycles are a constant dynamic in consumer investing, what has changed is the very definition of what consumer investing encompasses. For us at Maveron, the definition has broadened to include business models that combine enterprise revenue and enterprise products alongside a consumer offering. Companies with D2C, B2B2C, and B+C (explained below) all fall under our universe of consumer.

A venture-scalable consumer company to us is one that leverages technology and generates revenue through either direct or indirect consumer purchases, or by relying on consumer spending and engagement. These companies maintain consumers as the crucial stakeholder across product types (hardware, software, CPG) and distribution channels (D2C, B2B2C, B+C), rather than staying in just one product or distribution lane.

The broadening of consumer definition is not a rejection of its origins, but it is a reflection of the most successful consumer companies in the world.

The Future of Consumer Investing

Today, technology is more pervasive than ever before. Four out of the five most valuable companies in the country are consumer technology companies — Apple, Microsoft, Amazon and Alphabet. The focus on virtual, accelerated by Covid, has enabled everyone to be connected, regardless of geography. Companies have built treasure troves of data on consumers and companies as digital has proliferated over the last decade and a half. As technology has advanced, particularly in AI, we’re now able to make this data actionable by providing more targeted, tailored services. Whether it’s personalized supplements, music playlists, wardrobes or even movies and books, consumers are now trained to expect customization. These qualities define the next generation of consumer investing — the Age of Personalization.

We believe there will be numerous value creation opportunities that arise during the Age of Personalization, catalyzed by consumer preferences, technology advances and macroeconomic events. Moving forward at Maveron, we’ll be spending time developing a prepared mind and early point-of-view on these opportunities. We’re looking forward to sharing more of our thoughts on the Age of Personalization, including what it means in practice for early-stage consumer investors. Please subscribe to our Medium to stay in the loop and reach out to Natalie (natalie@maveron.com) or Simran (simran@maveron.com) if you’re also thinking about the next generation of consumer investing and company-building.