- Investors are anticipating ramping up investing in consumer startups in 2020 as the young Gen Z'ers start coming into real purchasing power after graduating college.
- The shift towards consumer investing is primarily driven by the breakout success of apps like TikTok that appeal to younger users, investors said.
- Gen Z will also produce a different kind of founder, investors said, because they will likely locate outside of Silicon Valley's tech hub.
- Other investors said they are focused on startups that help users, mainly Millennials, navigate complex life stages like home ownership and insurance.
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Millennials are old news. The generation that helped fuel the rise of tech startups like Uber and Airbnb is ceding the light pink crown to a new group of consumers with their own distinct tastes, values and memes: Enter Gen Z.
For Silicon Valley's venture capital investors, the start of the 2020s decade means finding and understanding the products and services that cater to these youngsters.
Several top venture capital investors told Business Insider that they anticipate ramping up investments in consumer startups next year, largely driven by the rising purchasing power of Gen Z'ers. The group's comfort with e-commerce and fluency with the latest technology trends make for a promising market opportunity, investors said.
"On the consumer side, we'll see more products and services that appeal to the Gen Z sentiments around authenticity, empowerment, inclusion and self-expression," Lerer Hippeau principal Caitlin Strandberg said. "This is a new consumer who is resourceful in learning about the brands and businesses they choose to support with their purchases."
The oldest of the digitally native generation is just graduating college and has never lived in a world without the internet. Their smartphones are second nature, and they've been largely responsible for the rise in meme culture and VSCO girls.
One of the biggest breakout hits of 2019 is TikTok, a Chinese karaoke app that has flourished among the younger set. Its rise was proof that there was money to be made from the financially conscious generation, investors said.
"It's a generation to whom tech and digital tools are inherent to everyday operating," NetSuite's VP of corporate development Jason Maynard said via email. "As this group enters the workforce, many are doing it in non-traditional ways. And when others do enter the traditional corporate environment, they expect social good and purpose baked into their professional remits."
A new generation of founders
Eventually, Gen Z'ers will be starting companies of their own, and the investors that supported their favorite products may be at an advantage, some VCs said.
"I'm really proud of the leadership in the entrepreneurs of tomorrow," Inspired Capital cofounder Alexa von Tobel told Business Insider. "A 22-year-old entrepreneur is so refreshing in how they think about the world. They have such a thoughtful and moderate view of it, and they have better equality and diversity as a group."
But that diversity means investors might have to go searching outside of Silicon Valley to win over Gen Z founders, many predicted. Those founders tend to expect flexible working options because they barely lived in a world without mobile internet, and hold the belief there are easier, more efficient way to get things done, Maynard said.
"In 2020, we anticipate tech hub expansion across the U.S., in Colorado, Georgia, North Carolina, Tennessee, Texas, Utah, among others. This is partly due to business-friendly environments, lower housing prices, and engineering graduates from local universities," Blumberg Capital founder and Managing Partner David Blumberg said via email.
Millennials still have the power
Many of these trends were kicked off with Millennials, the oft-maligned generation blamed for everything from lack of affordable housing to the decline of casual dining. The elder millennials are now entering their 40s, and investors haven't fully written off the buying power that helped spur startups like Uber and Airbnb. Now that the group is older though, they are looking for startups to help navigate the wedding planning or home buying processes instead of dating apps and urban transportation options.
"We're continuing to look at where consumer-oriented technology is penetrating sectors in the economy that haven't been impacted to-date, and that's largely insurance and real estate," Norwest Venture Partners managing partner Jeff Crowe told Business Insider.
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