What Happened To Consumer Device Startups?

While software continues to eat the world and VC checkbooks, venture investment in consumer electronics startups is poised to decline year-over-year in 2019.

That marks the third year in a row of contracting investment for the North American startups in the space, per Crunchbase data.

“It’s a down window right now,” said Eric Klein, partner at Lemnos, a hardware-focused seed and early stage investor that has been largely staying out of new deal flow in consumer electronics for the past couple years.

A Crunchbase analysis of investment in North American consumer electronics startups shows total known funding of $1.74 billion in 2019, down from $2.45 billion in 2018.

Klein didn’t name names, but startups that come to mind include Essential, the mobile phone and device maker that raised $330 million across two early stage rounds, and Magic Leap, the VR wearables unicorn that has raised over $2.6 billion to date.

It’s noteworthy that of all stages of consumer device investment, Series B was particularly weak this year.

Per Crunchbase data, just nine North American consumer electronics companies announced Series B rounds in 2019, bringing in $209 million (more details in chart below).

Because the bulk of really big startup financings happen at the later stage, after Series B, a slowdown here indicates the likelihood of fewer supergiant fundings for consumer electronics down the road.

The scarcity of supergiant consumer electronics fundings in recent quarters means there is a smaller pool of companies poised to become either the next big success or notorious failure.

In coming years — new sensors, maturation of the VR space, and other developing technologies will also likely open up new use cases for consumer electronics.

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