The Missing Middle
I was on a panel yesterday speaking with economic developers from across the country. Smart, committed people doing hard work in their communities, all there to wrestle with the same problem: why do the companies in my community struggle to get the capital they need to grow?”
Here’s the answer.
VC is structurally moving away from most communities, and the data is becoming undeniable. In 2024, just 30 firms raised 75% of all U.S. venture capital. Nine firms captured half. In 2025, a16z alone raised over $15 billion — more than 18% of all venture capital dollars allocated in the United States. One firm. Nearly a fifth of the entire market!
When capital concentrates at that level, check sizes go up, the number of bets goes down, and those bets get geographically concentrated in the same handful of metros they always have been. It’s no surprise, then, that in 2025:
The Bay Area took 52% of ALL U.S. venture capital deployed.
20 Bay Area zip codes EACH attracted more funding than 29 entire U.S. states.
Economic Developers, Ecosystem Builders, City Leaders: Here me loud and clear. Chasing VC is chasing a train that has already left the station for most communities.
The companies that are going to grow your tax base, keep your talent local, and actually create jobs for your neighbors are already there. But they’re not getting funded because the capital system was never built for them. This isn’t new. I’ve been saying it for years. What’s new is that it’s getting worse. VC is consolidating around AI mega-deals in San Francisco. The VC cavalry isn’t riding in. You have to build new and different infrastructure yourself.
And that infrastructure looks like local funds. Patient capital. Revenue-based financing. Community investment vehicles. Instruments designed for companies that grow steadily — not ones swinging for a billion-dollar exit.
It means funding “the missing middle.”
What is the Missing Middle?
The missing middle is simple: the companies that fall in the gap between two capital extremes.
On one end, banks. They want hard collateral, predictable cash flow, founder guarantees (and clean credit) and the ability to check every underwriting box. On the other, venture capital. They want hyper-growth, massive exits, and 10x-100x return potential.
Most companies are neither. They’re too early or too asset-light for banks, and nowhere near venture-backable. They’re service businesses. Consumer goods. Local product companies. Steady cash-flow builders. Growing, just not exponentially into unicorns. They need somewhere between $50K and $1M to fuel their growth, and most communities have no good answer for them.
This gap isn’t an accident. Our capital system was deliberately built for two extremes: low-risk lending and billion-dollar outcomes. Everything in between got left to fend for itself — personal savings, credit cards, friends and family, or just... nothing.
To be clear, these aren’t marginal businesses. They’re the engine of local economies. Small and mid-size companies create the majority of net new jobs. They keep talent in communities. They build the local tax base. They’re the businesses your residents actually interact with every day. And, with the right, aligned investment vehicles, they can also provide very handsome returns.
The Good News
Now the good news: the capital to fund your missing middle already exists in your community. It’s just not organized or deployed toward this purpose yet.
Start with your local and regional foundations. Most are sitting on endowments they’re required to deploy — and an increasing number are looking for ways to generate both financial returns and direct community impact. A local fund that backs growing businesses in your region is exactly the kind of vehicle that qualifies. CDFIs — Community Development Financial Institutions — are another underutilized resource. They exist specifically to provide capital where traditional markets won’t, and many are actively looking for deployment partners and deal flow.
Then look at what’s available from state and federal sources. The State Small Business Credit Initiative (SSBCI) put nearly $10 billion on the table specifically to capitalize state-level small business lending and investment programs. Many states have barely scratched the surface of what’s available. The SBA has matching programs. Economic development agencies have gap financing tools. The money and tools exist. Most communities just haven’t connected the dots.
And you don’t have to build this alone. Builders + Backers can help your community activate significantly more entrepreneurs, use data rather than biases to identify the ones with real traction, and increase the odds that capital actually converts to business success. Homefield Fund, can help you raise and deploy the local capital vehicles to fuel them. Organizations like Good Bread have completely changed the game for small business lending. National Coalition for Community Capital can help you understand, structure, and launch an innovative community investment vehicle. I could go on and on…
My point is, the expertise exists. The tools exist. The models are proven. What’s needed now is the decision to act.
This is not a niche finance problem. It’s the central economic development challenge of our time.
The companies your community needs already exist (and more are just waiting to be built). So too does the capital to fund them. What’s missing isn’t ideas or money. It’s the infrastructure to connect them.
What gets funded gets built. The future of our communities depends less on headline-grabbing startups and more on the steady growth of scalable local businesses.
If want to see what AI-powered entrepreneurship support actually looks like, check out Builders Studio. Our AI platform can help anyone, anywhere, bring their entrepreneurial idea to life.
If you’re an economic developer, ecosystem builder or organization supporting entrepreneurs and want to explore partnership, let’s talk.