We are inclined to think of a bust as something that comes after a boom. But that’s not all the time how it really works.
Take the consumer electronics industry, for example. Startup funding in the space has continued to say no this 12 months, even after several years of relatively flat investment.
So far in 2024, U.S. consumer electronics firms have secured lower than $300 million in seed funding through late-stage investments. That puts the space on track for its slowest fundraising pace in at least 10 years, as shown below.
Gadgets weren’t extremely popular in the times of prosperity, nor are they today.
Even at the peak of the bull market three years ago — when it gave the look of every tech sector was raising huge rounds of enterprise capital funding — consumer electronics startups weren’t doing this well.
It’s true that 2021 saw large funding rounds go to firms like smart exercise equipment maker Tonalhome automation startup Wyze Labsand technologically advanced bed manufacturer Eight DreamsStill, consumer electronics startups have raised a combined $2.2 billion this 12 months, lower than 1% of all U.S. enterprise capital funding.
Today, that proportion is even lower: Consumer electronics startups have attracted lower than $1 of every $300 in enterprise capital investment in the U.S. this 12 months, in accordance with Crunchbase data.
With numbers like these, we don’t see any latest consumer electronics unicorns. Nor do we see firms securing massive funding rounds of $100 million or more.
Meanwhile, among the existing unicorns, only one has raised funding this 12 months — Rocksdeveloper of augmented reality headsets for consumer and industrial use. Others that have raised large rounds include:
- Frore SystemsThe Silicon Valley-based company, which develops lively cooling technologies for consumer electronics, raised $80 million in Series C funding in May.
- ActualThe Cambridge, Massachusetts-based startup that focuses on nano-coatings for automotive components and consumer electronics raised $40 million in funding in April.
- StructureThe San Francisco-based maker of laptops that people can repair and upgrade closed a $17 million A-1 funding round in April, led by Spark Capital.
The famous bursts of flames
Investors’ reluctance to fund latest consumer electronics startups stems in part from the industry’s history of high-profile failures, some of which raised huge sums but then closed or failed to achieve traction.
One thing that immediately involves my mind is Magic jumpwhich raised greater than $3.5 billion in equity capital between 2014 and 2021 for its augmented reality wearables. But its devices never generated much revenue from consumer sales, and the company has since focused primarily on industrial customers.
Necessarya smartphone manufacturing startup launched by Android founder Andy Rubinalso generated initial enthusiasm but never took off after raising $330 million in 2016 and 2017. The British startup Thread later bought her mental property.
Among the more embarrassing failures in the meantime was the creation of a startup Juicerwhich sold a juicer along with pre-cut ingredients for juicing. The now-defunct startup drew criticism after a report that juicing the sachets produced the same results as using its pricey machine.
An enormous industry where prices are inclined to fall steadily
The slowdown in financing for consumer electronics startups has not been accompanied by a decline in spending on these products.
If anything, we’re spending more. This 12 months, for example, Consumer Technology Association predicts U.S. consumer technology retail sales will grow 2.8% to $512 billion. It forecasts spending will exceed $525 billion in 2025.
Consumers are also getting more for their money—which could also be good for us, but not necessarily for retailers. As the call to motion suggests, gadgets are inclined to be deflationary, as product quality improves often without big price increases. Many offerings, including high-definition TVs, smart doorbells, and wireless earbuds, actually cost lower than they used to.
For startup investors, all this seems to mean reduced willingness to do deals.