Consumer tech is one of the most exciting spaces for venture capitalists to place their bets. The best investment decisions in the venture capital space are bets on consumer tech companies. Sequoia turned its $60M investment in WhatsApp to $3Bn. Accel invested in Facebook. NEA invested in Groupon. Lightspeed invested in Snap. Long story short — if you find the right consumer tech company, you’ll make a boatload of money.

Support, however, for consumer tech companies has diminished in recent years. YCombinator had 30 consumer tech companies in their summer 2019 batch and only 13 in their summer 2023. To put this in perspective, B2B grew from 64 to 152 companies. We can use this as a proxy for how the broader venture market has been treating consumer tech companies.

Like the private markets, public consumer tech companies suffered a major hit. I looked at the stock price for consumer social apps like Match Group (who owns Hinge and Tinder), Pinterest, Snap, and Bumble. Match Group dropped 77% from its all-time high in 2021, Pinterest dropped 56%, Snap at 79%, and Bumble at 81%. Public markets, however, have sold off these stocks at a similar intensity as their broader tech peers with similar market capitalization.

So, why is the venture market harsher on consumer tech companies than public markets? Venture-backed consumer tech companies are often time pre-revenue. Think of Facebook when it first launched — no ads. Think of the apps that we currently use. BeReal, backed by a16z, is pre-revenue. Lapse and SideChat are also pre-revenue. During economic uncertainty where unit economics matter the most, consumer tech is the last thing you want to invest in. Public consumer tech companies, however, generate some form of revenue through advertising, allowing them to be treated on a similar level to their tech peers.

Consumer tech also lacks the exciting metrics that its peers in B2B or SaaS have — higher retention, recurring revenue, upsell opportunities, etc. Early-stage consumer tech is valued on user growth, engagement, and retention — not revenue.

We all know consumer tech is tough to invest and bet on. And if a VC makes the wrong bet, then it’s embarrassing. Consumer companies are oftentimes more “public-facing.” If a portfolio company fails, then it’s attributed to the founder, the team, and the VC. Whereas if the B2B SaaS company fails, it’s because the technology isn’t ready.

Consumer tech sucks, right? I’ve just listed out three reasons why consumer tech sucks: pre-revenue, lack of exciting metrics, and public humiliation.

However, I actually disagree. There will always be opportunities in places that no one believes in, and certainly, the market does not believe in consumer tech. For the rest of the blog, I will explain why I think 2024 is the year for consumer tech.

AI fundamentally changed how we work, play, and live. OpenAI’s ChatGPT, for example, is inherently a consumer product that has changed our day-to-day life. Perplexity, an AI search engine that recently raised $73.6M from NEA, Nvidia, and Jeff Bezos, is also a consumer product. I’m excited about the applicability of AI rather than the model itself.

For example, AI can fundamentally change retention in consumer tech startups. Garry Tan, CEO of YC, tweeted how LLMs can effectively double retention rates from <20% d90 to a viable and asymptotic 40%. Personalization is critical in consumer tech startups, so being able to have AI respond to a user can have drastic effects on a startup’s retention rate. As a positive externality, AI will also effectively reduce costs associated with operating a business.

The next big consumer startup will take AI and build on it — creating a differentiated product and user experience in one vertical. Think of Uber and how they were able to take a “mobile app,” build on it, and create a seamless experience that disrupted the way we get to places. I’m excited to see how someone can take AI, build on it, and create disruption — similar to how Perplexity does this with search.

Consumer tech is being driven by factors such as increased spending despite a decrease in disposable income. We’re also seeing a rise in smartphone usage, along with more sustainable methods of early monetization.

I’m excited for 2024! I’ll be paying close attention to consumer social and AI agents! Specifically, social apps that focus on serendipity and authenticity and AI agents that help you learn (think about learning a new language and practicing with AI using voice)!

Read more of Allen's writings on his Medium.