Consumer Investing Hits a Record Low - But Growth-Stage Consumer Brands Spend More Money on Advertising Than Ever Before
Venture capital funding for growth-stage startups continues to slow significantly, impacting businesses worldwide. This decline, which began in Q3 2022, has persisted into the present, marking one of the toughest fundraising environments for consumer startups in recent memory.
In fact, consumer-focused startups in the US now attract only USD 1 in every USD 16 invested in rounds featuring top investors, compared to USD 1 in every USD 3 just ten years ago.
This stark shift underscores a broader trend:
- VCs are increasingly wary of consumer-focused startups.
- Founders are exploring alternative financing options or risking stagnation.
The tightening grip of reduced VC investment has led consumer brands to rely even more heavily on digital advertising channels.
Often seen as the most cost-effective and predictable marketing option, digital advertising is becoming increasingly expensive as:
- Costs per click (CPC) and customer acquisition costs (CAC) continue to rise.
“Building a marketplace requires multiple growth channels. When we launched our first ad on Channel 7, we saw an immediate 30% week-on-week increase. Over five years, our brand awareness surged from 6% to 60% in Australia, and revenue grew 25x. No digital ad platform or PR strategy alone could have achieved that level of impact.” - Tim Fung, Founder and CEO of Airtasker
- Marketing expenditure remains high, with brands typically spending 20-30% of their revenue on marketing.
“On average, brands allocate a significant portion of their revenue—typically 20-30%—toward marketing expenses. This can be even higher for high-growth direct-to-consumer brands heavily reliant on paid acquisition channels.” - Anna Jarosz, Partnerships Growth Manager at Uncapped
This number can go as high as 40%, according to an analysis of 100 K1 statements.
In this shifting landscape, the ability to adapt quickly and effectively could become the defining trait for successful consumer startups.
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