An oil & gas start-up in San Francisco is going to have a tougher time than one in Houston. You don’t see those much. But you do see e.g. agtech in the Bay Area flying out weekly salespeople to Iowa. It’s trivial for a competitor to undercut them on credibility alone.
That said, I think this is more pertinent to sales than other fields. And for some businesses, proximity to capital trumps proximity to customers.
I guess you could argue those businesses should be in Sacramento instead of San Jose.
But example aside, I do agree with your overall point.
Just wanted to point out that even before accounting for industry size, there’s just more profit sloshing around California’s ag industry which makes it easier to square market fit with the returns VCs desire.
An equally valid position is: don’t cap the size of your addressable market to just people who live in the place you work.