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Venture capital outside of the U.S. are having an identity crisis.

In shrinking markets, founders face a critical decision: go small or go global.

And for many, “global” means one thing—America.

With barriers to starting a business in the U.S. at an all-time low, the top founders in shrinking markets are bypassing local investors and heading straight to U.S. venture capitalists who can give them the resources and networks they need to win.

This shift leaves local venture funds at a crossroads as they begin to lose their product-market fit. Now, these funds must make a choice:

  1. Stick to the old playbook. Keep investing in the second-tier founders who remain within the local ecosystem.
  2. Pivot to a new market. Start playing on a global stage to remain competitive.

The Consequences of Sticking to the Old Playbook

Venture funds that choose the first option—investing in second-best founders—may find moderate success. These funds can continue to exist, but they’ll operate in smaller, less competitive arenas. While this may work in the short term, the long-term sustainability of such a strategy is questionable.

The Challenges of Pivoting to a New Market

On the other hand, funds that pivot to target global markets enter a new battlefield—one where their reputation, network, and ability to support world-class founders will be tested. This path offers the opportunity to redeem themselves and potentially reclaim a position of leadership. However, success is far from guaranteed, and competition is fierce.

The “Vision of Market Entry” Fallacy

Some venture funds propose a third option: winning back top founders by promising them a vision of market entry.

This strategy is both self-serving and delusional for several reasons:

The best founders don’t need it.

  1. Founders who are capable of succeeding in the U.S. already know their value. They don’t need to align with local VCs who may tarnish their reputation in a new, more competitive market.

The best VCs only back the best founders.

  1. Top-tier venture capitalists prioritize working with the most promising founders, which keeps their brand strong and desirable.

False promises harm founders.

  1. VCs who overpromise and underdeliver on market entry strategies can harm founders by misbranding them or undermining their credibility in global markets.

The Harsh Reality: Founders Pick VCs, Not the Other Way Around

At the end of the day, the best founders choose the best VCs. If the top founders in a shrinking market are no longer picking you, your days as a top-tier VC are over.

The Takeaway: Customer Obsession Drives Product-Market Fit

For VCs, product-market fit comes down to one thing: obsession with serving your customers—founders.

In shrinking markets, venture funds must now decide whether to double down on what’s familiar or evolve to meet the demands of a changing global landscape.

The choice for founders is simple, but the path forward for venture capital? Far from easy.



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