Despite the potential for technology to radically transform it, the sex tech industry isn’t actually discussed much. In most of the world, sex is still a taboo topic, and funding for the industry isn’t as robust as one might assume.
Of course, sex being tabooed doesn’t help, but part of the reason for this lackluster investment seems to be that many investors have vice clauses that dictate where they can invest their limited partners’ money, and it turns out that sex is quite high on that list.
Still, PitchBook shows that though the industry receives small amounts of capital, funding has remained relatively steady over the years. In 2020, sex tech startups raised $352 million, and in 2021, like most other sectors, investments in the space increased to $422 million. That fell to $275.8 million last year, in line with the general slowdown in venture capital investing.
Things seem to be improving, though: Sex tech startups have raised $111.9 million this year, and if the trend keeps up, they’ll be on track to at least raise as much as they did in 2022, if not more.
Some investors are not afraid. Although there is no fund focused on the space yet, some investors have it as part of their wider focus on women’s health. Jessica Karr, the co-founder of Coyote Ventures, invests across the spectrum of women’s health and wellness. Previously, she helped develop and launch the Impossible Burger and currently serves as a limited partner in other women-led funds.
With Coyote, she has invested in cancer-detection company Gabbi, the fintech company The Beans, and bereavement care company Betterleave. Curious about the burgeoning sex tech market, I caught up with Karr to talk about its role in the women’s health industry, the potential of the category, and where she sees it going in the future.
Jessica Karr, the founder of Coyote Ventures. Image Credits: Coyote Ventures
This interview has been lightly edited for clarity.
TC: Why is sex tech overlooked, and how long do you expect the category to remain taboo?
JK: The simple answer is human nature. A lot of folks are uncomfortable with acknowledging sex at all. I’ve discussed my sex tech investments with females at other funds who laughed when they imagined trying to get the deal through their all-male investment committee. A lot of the sex tech companies I’ve seen are addressing the gap that most sex-related products were designed by men, with a “male gaze” lens rather than an actual understanding of female pleasure.
Sex tech is an inclusive space — there are also many new products that are innovative for gender inclusivity as well as sexual wellness for men. While the new products address the true diversity of all people’s personal preferences, the taboo will remain for a long time. I’m optimistic about Gen Z, who tend to be more open and fluid with sexuality. I believe that with each new generation comes a new level of open-mindedness and willingness to openly discuss matters related to sex.
How do you see the increasing politicization in this country impacting the sex tech industry in the future?
While politicization has negatively affected reproductive rights, it could actually be a benefit for the private sector. Passion for reproductive justice has driven many conversations forward and could contribute to destigmatizing the sex tech sector.
Why would investors risk pushing back on a vice clause for a sector that’s still just worth millions?
The vice clause in LPAs [limited partner agreements] varies by the fund and can become more restrictive with more institutional investors. Emerging funds have the flexibility to negotiate the scope of the vice clause. While some pornography-related vice clauses tend to be upheld, including in my LPA, my institutional investors acknowledge that our sex tech investments are not pornography and the investments are acceptable to them.
I do recognize there are some exciting companies innovating in the ethical and inclusive pornography space, and it’s unfortunate that these are more restricted due to the vice clause.
What are other challenges in scaling within this market?
Marketing is very expensive, and often a large CAC [consumer acquisition cost] is required to acquire a customer. Pleasure accessories (aka sex toys) often don’t see a repeat purchase, putting them in danger of a small LTV [lifetime value].
What gives you hope in this industry?
I’m excited to continuously understand more about our bodies. There’s a big opportunity to connect more with the biohacking and longevity communities, recognizing how much of a correlation exists between sexual health and overall health.