We usually think of a bust as something that comes after a boom. But that’s not always how it works.

Take the consumer electronics industry. This year, funding to startups in the space continued to slump, even after several years of relatively flat investment.

So far in 2024, American consumer electronics companies have secured less than $300 million in seed through late-stage investment. That puts the space on track for the slowest fundraising pace in at least 10 years, as charted below.

Gadgets didn’t get much love during the boom years, or today

Even at the height of the bull market three years ago — when it seemed like every tech sector was landing huge venture rounds — consumer electronics startups weren’t riding all that high.

True, we did see big rounds in 2021 go to companies like smart gym equipment maker Tonal, home automation startup Wyze Labs, and high-tech bed maker Eight Sleep. But even so, startups in the consumer electronics space attracted $2.2 billion in total that year, less than 1% of all U.S. venture funding.

Today the proportion is even lower. Per Crunchbase data, consumer electronics startups pulled in less than $1 out of every $300 in U.S. venture investment this year.

With these kinds of numbers, we’re not seeing new consumer electronics unicorns. Nor are we seeing companies securing mega-sized rounds of $100 million or more.

Among existing unicorns, meanwhile, only one raised funding this year — Rokid, a developer of augmented reality headsets for consumer and industrial use cases. Others that raised good-sized rounds include:

• Frore Systems, a Silicon Valley-based developer of active device cooling technology with applications in consumer electronics, landed $80 million in a May Series C.
• Actnano, a Cambridge, Massachusetts, startup working on nanocoatings for automotive components and consumer electronics, picked up $40 million in an April financing.
• Framework, a San Francisco-based maker of laptops that people can repair and upgrade, closed on a $17 million A-1 round in April led by Spark Capital.

Famous flameouts

Investors’ reticence to fund new consumer-facing electronics startups stems in part from the history of famous flameouts in the space. Some raised copious sums but later shuttered or failed to gain traction.

One that leaps immediately to mind is Magic Leap, which raised over $3.5 billion in equity funding between 2014 and 2021 for its augmented reality wearables. Its devices, however, never generated much in the way of consumer sales, and it has since pivoted primarily to industrial customers.

Essential, a smartphone startup launched by Android founder Andy Rubin, also generated early enthusiasm but never took off after raising $330 million in 2016 and 2017. British startup Nothing later purchased its intellectual property.

Among the more embarrassing failures, meanwhile, was the startup Juicero, which sold a juicing machine along with pre-cut ingredients to make juices. The now-defunct startup drew flack following a report that squeezing said pouches produced the same result as using its pricey machine.

A huge industry, where prices tend to fall steadily

The slowdown in funding to consumer electronics startups does not coincide with a decrease in spending on these products.

If anything, we’re spending more. This year, for instance, the Consumer Technology Association predicts that U.S. retail sales of consumer tech will rise 2.8% to $512 billion. It forecasts spending will exceed $525 billion in 2025.

Consumers are getting more for their money as well — which may be good for us, but not so great for sellers. Per CTA, gadgetry tends to be deflationary by nature, as product quality improves often without big price hikes. Many offerings, including high-definition televisions, smart doorbells and wireless earbuds, actually cost less than they used to.

For startup investors, all that seems to translate into a diminished appetite for dealmaking.

Illustration: Dom Guzman