The Customer of Venture Capital Isn’t the Founder, It’s the Investor

Until Cities Get That Straight, Startups Will Keep Starving for Capital

It’s a weird day when the world’s entrepreneurs sound like customers complaining about a bad product.

“We can’t find funding.” “Investors aren’t taking risks.” “There’s no capital in our city.” You’ve heard it a thousand times; it’s the economic equivalent of Yelp reviews from startups that believe they’re entitled to be served. And I’m concerned, because in a strange inversion of logic, cities, accelerators, and economic development offices rush to solve the wrong problem. They’re not fixing the product. They’re fixing the reviews.

We’ve somehow forgotten that venture capital is itself a business, with customers of its own. The customer of a VC isn’t a founder; it’s a Limited Partner (LP). The pension funds, individual investors, endowments, and family offices that fund the funds are the paying clients. Venture capital firms, like any other business, have to deliver a return to their customers.

The “product” they’re selling to LPs is the startup.

So, when the startups in your city aren’t getting funded, it isn’t because investors aren’t available, it isn’t that investors are cruel, or the system is broken, or the government hasn’t hosted enough “meet the VC” nights with deli plates and Hello My Name Is stickers. It’s because the products (the startups) aren’t good enough to sell and that is in part because the ecosystem needs work. Why startups struggle to get venture capital funding is because the way you’re supporting the ecosystem isn’t working.

The Product Feedback Loop Nobody Wants to Hear

Every time founders lament the lack of capital, they’re giving feedback. But it’s product feedback, not customer feedback. The customer (the LP) isn’t buying. And the customer isn’t buying because the product (the startup) AND your market aren’t offering value commensurate with the risk.

If a car company blamed consumers for not buying a faulty vehicle, we’d laugh. But in startups, we treat it as noble suffering. Founders and cities rally behind “capital deserts” promising networking events, demo days, and warm intros, instead of facing a simpler truth: if capital isn’t flowing to your region, your product isn’t compelling enough.

I just hosted an economic development event and in our discussion of startups, we polled the audience asking the challenges to scaling startups in your region. The majority conclusion?

Lack of access to capital (We’ll be writing up the talk and sharing the video shortly, make sure you’re subscribed here if you want to get it). Now, I share that, because that’s the opinion of local governments and economic development offices. We lack access to capital. And yet, this has been researched, the primary reasons venture capital isn’t sufficiently available in a city are risk aversion, lack of a network, and startup quality – follow? You don’t lack access to capital and you’re addressing the wrong problem if you think it’s merely making investors available.

The Real Market of Venture Capital

Venture capital is a two-sided market. On one side are investors (LPs) seeking returns. On the other side are startups seeking capital. The venture firm sits in the middle, much like a wholesaler. It doesn’t manufacture startups, it curates them, packages them, and delivers them to its customers, who are the investors buying exposure to risk-adjusted innovation.

If LPs aren’t reinvesting in funds that focus on your city or your ecosystem, it’s not because of some national conspiracy against your address. It’s because the funds haven’t proven that product-market fit works there (product-market fit, a startup sector term meaning that what a startup offers fits what the market values). If venture dollars aren’t flowing, it’s because investors don’t see scalable startups worthy of that flow – and that’s not alone founders’ fault: it’s your ecosystem, the startup programs, the mentorship available, and more.

Cities Are Treating Venture Capital Like Tourism

Economic development offices are throwing money at “venture capital attraction” programs as though venture funds are visiting tourists; bring them in, show them the sights, tour the innovation hub filled with local character, let them shake hands with some founders, and maybe they’ll leave a few dollars behind. It’s the same thinking that turned startup accelerators into ribbon-cutting ceremonies.

But capital doesn’t show up for good hospitality. It shows up for good economics.

Cities shouldn’t be hosting investor summits; they should be building markets that serve founders and mitigate risks; the kind that generate the data, customers, and confidence that make LPs invest in the funds that back those regions.

In short, if the startups are the product, and the LPs are the customer, then the role of a city is to strengthen the supply chain. That means refining startup quality, expanding founder education, promoting opportunity, aligning with universities and R&D, and ensuring early customers exist within reach. You don’t need to attract VCs; you need to build a market worth their inventory.

Building Better Products and Better Markets

Want investors to fund your startups? Stop trying to sell the story and start building the infrastructure.

1. Focus on Founder Development, Not Pitch Training.
   Don’t teach founders how to raise money; teach them how to build something worth funding. Programs like Founder Institute, Y Combinator, and Techstars succeed because they filter ruthlessly for execution, not charm.
2. Fund the First Customers.
   Create procurement programs that buy from local startups. Cities could seed their own innovation economy if they treated startups as vendors instead of vanity projects.
3. Professionalize Angel and Mentor Networks.
   Local angels need to be actual angels (not business investors) and mentors must be expected to have startup experience. Foster co-investment through structured syndicates. Support the mentors who aren’t just skilled, they’ve been through the startup ringer.
4. Measure Outcomes, Not Events.
   Track founder retention, capital raised, and startup growth, not attendance at pitch nights. LPs care about measurable ROI, and so should cities.
5. Build Domain Clusters That Make Sense.
   Stop chasing “tech.” Chase the specific industries that fit your DNA: healthcare in Nashville, logistics in Bentonville, semiconductors in Phoenix. You can’t fake an ecosystem any more than you can fake a product.

The Hard Truth: The Problem Isn’t the Capital

When founders complain that they can’t find capital, cities respond by trying to import local wealth to meetups. They host events and court people with money in an effort to encourage check-writing. But they rarely ask why investors aren’t already there. Worse, pulling business investors, wealthy community members, and capital familiar with real estate or oil is only going to frustrate matters more because startups are high risk investments unfamiliar to such people.

Capital is fluid. It hunts for yield. It’s not sentimental about geography or narrative. When it doesn’t come to you, it’s not because it’s hiding, it’s because it’s unimpressed.

The brutal reality of venture capital is that it’s a market like any other. If the customers (LPs) aren’t buying the product (startups), the problem isn’t the supply of capital. It’s the quality of inventory and the market in which it’s available.

The Fix: Stop Selling, Start Building

If your city wants venture capital, stop marketing to investors and start manufacturing scalable startups while developing your supply chain as a market in which they thrive. That means cultivating entrepreneurs who understand markets, unit economics, and the discipline of execution, not just the pitch deck template.

It means listening to the real feedback; the kind that doesn’t feel good. When capital skips over your region, it’s not rejection. It’s a signal.

As with any business, product feedback is your path to improvement – in this case, the customers are already telling you it needs work. The goal isn’t to attract capital, it’s to deserve it.

If your economic development strategy doesn’t yet understand that venture funds have customers, it’s time to redesign your startup ecosystem as though you were building a business, because you are. Let me know if I can help.