VC Has a Geography Problem

Kyle Hudson spent a decade working with some of the biggest brands in the world, leading complex projects, collaborating with C-suite executives, and transforming intriguing ideas into successful ventures. In 2024, he began to build a social curation network where people and businesses could create collections of organized, browsable content for others to follow, save, and reuse. Four months later, he and his co-founder, Martina Zrnec, released the Stacklist website and began searching for investors.

Conversations with pre-seed investors were unsatisfying. Hudson explained, “The incentive structure around early-stage investing has shifted in a way that quietly punishes anything that doesn’t fit a familiar pattern.”

The problem wasn’t the fundamentals. It was the zip code. For founders building companies outside Silicon Valley, venture capital can feel like a closed system. Hudson built Stacklist in Marietta, Georgia – outside the warm-intro radius of traditional VC hubs. He needed investors willing to evaluate founders whose companies were being built outside the most familiar venture networks.

Hudson found Brad Zapp, a former wealth manager from Northern Kentucky who founded a national VC firm with deep roots in the Midwest. Zapp’s firm, Connetic Ventures, studies investment opportunities across diverse U.S. technology markets using a data-informed process designed to reduce reliance on warm introductions and geographic pattern matching.

Venture capital is a powerful driver of innovation. In the United States, the industry clusters in a limited number of geographic regions, typically coastal areas. Investment firms source deals through regional networks, operating on the assumption that founders with great ideas will migrate to these regions to gain knowledge, mentors, and funding access.

At one time, VC hubs created competitive advantages. Today, those advantages are rapidly eroding. In crowded ecosystems, deal competition increases, valuations rise, and the expected return on any individual deal compresses. Today, geographic concentration is a risk factor masquerading as a competitive advantage. You don’t have to look far to find evidence. In the Q4 2025 Venture Monitor report, NVCA described recent investment patterns:

In 2025, vast amounts of capital funded a few large late-stage AI deals. Fifty percent of deal value went to 0.05% of deals, a level of concentration that would be unacceptable in nearly any other asset class. Every quarter, in excess of $50 billion was invested in megadeals, producing the first-, third-, and fourth-highest valued quarters on record. The kicker is that there has been a decline in the number of very large deals. In 2025, there were 44% fewer than in 2021, according to NVCA data.

Like Detroit’s auto cluster, geographic concentration in venture capital is turning efficient coordination and rapid feedback loops into a source of systemic vulnerability as shared assumptions and shared exposure magnify risk.

When investors chase the same founders, the same rounds, and the same consensus narratives, a feedback loop develops. Well-networked founders are oversubscribed before fundamentals are established, early rounds price up before real risk is resolved, and investors anchor to each other’s conviction rather than underwriting independently. What looks like a robust market is often a crowd validating itself and mistaking consensus for diligence. That can work against the structured, data-informed review that early-stage investing requires.

Crowded ecosystems don’t eliminate risk; they repackage it. Instead of execution risk, investors take on valuation risk and correlation risk. Too many portfolios are exposed to the same sectors, hiring pools, and downstream capital expectations. Geographic diversification, often discussed as part of broader private-market research, can become harder to evaluate amid herd behavior.

Investment firms operating in regional centers depend on warm introductions from known networks, partners who travel to the same conferences and recruit from the same universities, and pattern-matching heuristics that seek Silicon Valley company lookalikes. It’s an approach that reliably finds founders who operate within the system and overlooks those who build outside of it.

A founder building a hypothetical logistics platform in Memphis, a healthcare data company in Cincinnati, or an enterprise software business in Salt Lake City is not less capable than their counterpart in Palo Alto. They’re simply never seen because the industry’s geographic filters have crowded out quality filters.

VC crowding can also create a research opportunity for investors who believe high-quality companies may form outside the most visible markets and who remain focused on fundamentals. Founders operating outside of VC hubs have structural advantages that compound over time.

Lower burn rates translate directly into longer runways, which means more time before the next raise, and less pressure to accept unfavorable terms.

Lower customer acquisition costs in non-coastal markets often reflect founders’ deep understanding of, and close relationships with, their customers.

These are not companies that were incubated in a VC ecosystem and learned to speak the language of investors. They are companies that grew up next to their customers and learned to solve real problems.

For advisors and private-market investors, the implication is not that geography alone should drive allocation decisions. Rather, geography is one lens for understanding where capital may be concentrated, where competition may be elevated, and where overlooked founder ecosystems may exist.

Our view is that private-market research benefits from a broader sourcing lens. Looking beyond the most crowded venture hubs can help investors ask better questions about valuation, burn rate, customer proximity, market access, and correlated exposure across sectors, stages, and vintages.

Connetic Ventures was built around the view that high-quality founders can emerge in many markets, not only the most visible venture hubs. Connetic, which was founded in Covington, Kentucky, has Midwest roots and a national research and sourcing lens. Selected private-company examples from Connetic’s broader research and sourcing universe include:

Connetic studies founder, company, and market signals across a broad national sourcing landscape. Each year, Connetic’s digital analyst, Wendal®, evaluates more than 6,000 startups using structured data inputs such as founder background, domain expertise, early customer traction, revenue trajectory relative to capital deployed, and team composition.

This process is designed to support a more consistent review of companies across geographies. It does not eliminate judgment, and it does not guarantee outcomes, but it can help reduce reliance on warm introductions, geographic proximity, and pattern matching alone.

The VC industry has spent decades building systems that concentrate attention in the same regional hubs. Those systems can be useful, but they can also leave gaps. For founders building elsewhere, and for investors studying the private markets, geographic bias can shape what gets seen and what gets missed.