Why We're (re)Investing in Consumer

There was a time, not so long ago, when consumer investing was venture capital’s sweet spot. The launch of the App Store in July 2008 enabled a generation of young founders to reach consumers independently – without corporate distribution deals or retail partnerships – leading to an explosion of consumer startups. Most of them were short-lived, but out of that moment when anything seemed possible, a wave of new platforms and products captured customer love, changed consumer behavior, and forged new business models that couldn’t have existed a few years earlier: social platforms like Twitter, Pinterest, and Instagram; D2C brands like Dollar Shave Club, Warby Parker, and Glossier; and peer-to-peer networks like Uber and Airbnb became VC darlings and drove impressive returns for the firms that saw their potential early.

Then the tide turned. Rising customer acquisition costs, restrictions on consumer tracking, and a string of disappointing IPOs spooked the market and by 2024, consumer investments accounted for only 6% of venture capital deployed by the 100 most active VC firms. B2B SaaS, with its predictable recurring revenue and multi-year contracts, had become the new VC darling, capturing the lion’s share of investor focus. The AI era has only reinforced this: despite ChatGPT launching to consumers first, capital has piled into enterprise infrastructure and vertical B2B applications.

At BBG Ventures, we think the pendulum has swung too far. We were not immune to the shift, but our roots as investors during the heyday of mobile startups meant we never totally abandoned consumer investing. Today, we invest at both edges of the innovation spectrum: AI-native companies with technology leverage that are rewriting what’s possible; but also companies built on enduring human needs that AI can’t deliver. My partner, Nisha Dua, buckets the two sides as Deep Technology and Deep Humanity. Make no mistake: even companies that fall on the farthest end of the Deep Humanity side are benefiting from AI advances – but that’s only one of many reasons why Consumer is a huge opportunity right now. A few more to consider:

There will always be human needs that AI cannot fulfill

The most durable consumer businesses are built around something irreducibly human — physical products, emotional connection, community, care, identity. A trustworthy, mom-founded school transportation service (like HopSkipDrive); a solution for acne built on self-expression not shame (like Starface); a powerful home cleaning brand with no plastic waste (like Blueland). Companies like these in BBG’s portfolio aren’t threatened by better language models. In fact, they will only benefit from LLM advances that make creating, manufacturing, marketing, serving, and fulfilling more automated and less costly. They serve needs independent of any technology cycle, and yet their defensibility is undervalued right now.

Gen AI is slashing the cost to imagine, develop, and market consumer products

AI code assistants now enable rapid prototyping that would have taken months to complete in the past. Founders can iterate on product design, test hypotheses, and launch at a fraction of the previous cost. For CPG startups — where speed to product-market fit has always been a critical variable — this is a structural advantage that didn’t exist just three years ago.

Hyper-personalization at scale is finally possible

Consumer companies have always competed on customer experience. AI makes genuinely personalized marketing, recommendations, and customer engagement achievable for early-stage companies. A startup today can deliver an experience that would have required a huge CX organization five years ago.

Conversational commerce is opening a new acquisition channel

The Facebook and Instagram ad model that powered D2 C’s first wave is broken, but a new acquisition channel is emerging: AI-powered chat and voice agents that meet consumers at the moment of intent rather than interrupting them mid-scroll.

The structural difference matters. A chat agent on a brand’s site, in a WhatsApp thread, or embedded in a search result isn’t buying eyeballs in a noisy auction — it’s handling a qualified question from someone already curious. The data backs this up: Gorgias, whose platform powers conversational commerce for thousands of Shopify brands, reports that shoppers who chat convert 154% higher, and that brands using its AI shopping-assistant features nearly double their conversion rates compared to using AI for support alone. And because the channel is first-party by design, it’s not subject to the privacy changes that gutted performance marketing.

The longer arc is even more interesting. As AI shopping agents — the kind that can research, compare, and complete a purchase on your behalf — move from novelty to habit, the brands best positioned will be those with rich product data, strong reviews, and a direct relationship with the customer rather than a huge marketing budget. That levels the playing field for newer entrants.

Legacy consumer platforms are vulnerable

Expedia, Zillow, Yelp, Monster, Indeed, HotelTonight were built for a keyword-search, portal-driven internet, not an intent-driven, conversational one. The companies that replace these incumbents will look completely different. Instead of destinations, they’ll be personalized pathways. We look for customer-obsessed product leaders reimagining what travel, home buying, or job search could look like in the future.

[Note: the clearest early warning sign of this shift isn’t in consumer yet — it’s in B2B. HubSpot’s CEO told analysts on a Q1 2025 earnings call that the company lost 70–80% of its organic traffic between November 2024 and Q2 2025 as AI Overviews answered questions before users ever clicked through. The decline hasn’t let up: on their Q1 2026 earnings call, CEO Yamini Rangan reported organic traffic down 27% year-to-date, even as the company races to sell customers on “AEO” (answer-engine optimization) as the replacement channel. If a company whose growth engine runs on organic search traffic is losing that much, that fast — and still bleeding a year later — the consumer portals above, whose entire product is keyword search, can’t be far behind.

Valuations for consumer companies, even consumer AI companies, are materially lower than for AI infrastructure startups

Valuations on AI application-layer companies have become detached from fundamentals. Many of these businesses will be commoditized as foundation models improve and move up the stack. With so much capital chasing too few durable deals, consumer seed opportunities look more and more attractive. The gap isn’t subtle: Carta’s Q1 2026 data shows AI foundation-model companies raising Series A rounds at a $300M median valuation, more than 5x the $55M median for non-AI startups at the same stage — and consumer, like most non-AI categories, is priced closer to the latter. B2B investors will point to the fact that exits for SaaS, enterprise and (in time) AI companies can be many multiples of the best consumer exits – and that’s hard to argue with. But lower valuations at entry can create competitive return multiples, especially when time to exit is factored in.

We’re at the beginning of what should be a great cycle for consumer investing.

Every transformative technology creates a primordial soup for new ideas. The worldwide web enabled companies like Amazon, Google, eBay, Netflix, and Priceline to be built. The mobile revolution drove innovation across multiple sectors: Instagram, Snapchat, and TikTok propelled social to new heights. Venmo reimagined digital money transfers. Spotify changed the way we consume music. And Uber, DoorDash, and Task Rabbit created a wholly-new sector: the on-demand economy powered by a new “gig” workforce. The AI era will be no different. In fact, AI may be the most consumer-native platform shift yet, with ChatGPT’s first hundred million users driven almost entirely by consumer adoption.

The pendulum swung too far toward B2B because the last downturn punished consumer’s weaknesses — CAC, tracking, IPO performance — right as SaaS’s strengths came into focus. Those same structural forces are now working in consumer’s favor: reduced building costs, first-party acquisition channels, lower entry valuations, and defensible human needs no model can replace. At BBG, our Consumer investing homes in on founders with lived proximity to the need state; categories with complacent incumbents; where identity and community are core to the value proposition, and loyalty compounds with trust. If you are a founder building something to surprise and delight a new generation of consumers, reach out to us. We can’t wait to meet you.