'Darkest before the light': These investors think AI can lift VC out of its consumer tech slump (www.businessinsider.com)

A growing group of venture investors is betting that generative AI will revive consumer tech after the category’s early-2020s boom-and-bust. New funds and splinter firms—like Premise, Hobart, and Parable—plus established VCs (a16z, Menlo, Bessemer) are “buying the dip,” arguing LLMs and assistant platforms can enable much faster user growth and new monetization paths. The shift is occurring despite steep funding declines: VC dollars for consumer-focused funds fell to about $9B in 2024 from $65B in 2021, and Carta reports consumer startups raised 47% less in Q1 2025. Still, investor enthusiasm centers on AI’s distribution and scale effects—if search and discovery migrate from Google to ChatGPT, founders can re-optimize acquisition and revenue models around LLM platforms. Technically and commercially, the playbook is evolving: startups are experimenting with subscription + usage-based pricing (examples: Rosebud, Krea), specialized AI assistants and vertical products (Granola, Alta, healthcare and gaming startups), and ad or platform-driven distribution through APIs and conversational front-ends. Early metrics are mixed—Menlo says only ~3% of consumers pay for premium AI today—but VCs argue that emergent LLM distribution networks and new ad/analytics primitives could unlock rapid revenue expansion. Risks remain: Big Tech control of distribution, hard-to-solve monetization, viral-but-fleeting hits (Clubhouse, Flip), and safety/regulatory concerns highlighted by Character AI’s legal and FTC scrutiny. The bet is high-risk but, if correct, could recreate consumer-scale businesses “in months, not decades.”