Uncorrelated Deals: The Diversification Advantage for LPs
Why investing in the Interior Innovation Corridor reduces portfolio risk and strengthens long-term venture returns.
Institutional LP portfolios have a concentration problem. Over the last two decades, the majority of venture capital dollars have flowed into the same coastal innovation hubs — Silicon Valley, New York, and Boston. While these ecosystems have produced significant returns, they have also created an unintended consequence: highly correlated venture exposure across funds, sectors, and exit markets.
This means that LPs investing in multiple coastal VC funds often end up owning the same kinds of companies — and in many cases, the same actual companies, just through different syndicates. Their portfolios move in lockstep, rise and fall together, and are sensitive to the same macroeconomic factors.
The Interior Innovation Corridor (IIC) offers a powerful solution to this concentration risk. Because its innovation economy is grounded in hardtech, manufacturing, materials, energy, aerospace, medtech, and national security, the companies emerging from the IIC behave very differently than those in software-heavy coastal ecosystems. As a result, they provide something venture investors rarely find: uncorrelated returns.
The Coastal Correlation Problem
Coastal portfolios are dominated by:
SaaS
fintech
cloud platforms
messaging and marketplaces
consumer tech
AI and ML-model companies
These categories share:
the same customer base
the same revenue models
the same talent pools
the same late-stage growth investors
the same dependency on NASDAQ multiples
the same exit pathways (Big Tech acquisition or IPO)
In other words: they rise and fall together.
When capital tightens, talent becomes expensive, or tech multiples compress, the entire sector — and therefore the entire portfolio — reacts simultaneously. LPs with multiple coastal VC relationships often find that their venture exposure is far more correlated than intended.
Why the IIC Provides True Diversification
The Interior Innovation Corridor breaks this pattern because the companies emerging from the region operate in different industries, cycles, and customer markets entirely.
1. Sectoral Separation
IIC startups focus on:
advanced materials
industrial automation
mobility and aerospace
medtech and devices
energy and climate technologies
food and agriculture systems
defense and dual-use technologies
These sectors have macro-drivers that differ from tech markets, including:
industrial demand
defense appropriations
infrastructure spending
supply chain reshoring
healthcare system procurement
energy policy
These cycles are counter-cyclical to software.
2. Unique Exit Pathways
IIC exits involve:
defense primes
aerospace corporations
energy majors
automotive OEMs
hospital systems
advanced manufacturers
These acquirers are not dependent on SaaS multiples or Big Tech consolidation patterns. Their buying behavior is driven by strategic needs, not market sentiment.
3. Minimal Cap Table Overlap
Coastal funds tend to syndicate together (Sequoia, a16z, Founders Fund, GC, Tiger, Coatue, etc.).
IIC funds — by design — operate in entirely different syndicates:
regional VC
strategic corporates
federal partners
university commercialization groups
LPs who invest in the IIC are not buying the same companies twice.
Hardtech Is Less Correlated — and More Durable
Hardtech companies take longer to mature, but have:
deeper moats
higher switching costs
more defensible IP
clearer pathways to revenue
lower susceptibility to hype cycles
Most importantly:
They do not depend on speculative growth rounds to maintain valuation momentum.
This gives LPs exposure to long-duration, asset-backed venture value that moves independently from software markets.
The Takeaway
Allocating capital to the IIC is not just an investment in a rising innovation region — it is a strategic risk-management decision.
By investing in companies that operate in different cycles, address different markets, and follow different exit paths, LPs gain:
lower correlation
reduced concentration risk
higher portfolio resilience
exposure to real-economy growth
alignment with national priorities like manufacturing, energy, and defense
The IIC delivers something coastal VC cannot: true diversification.
This is why sophisticated LPs are increasingly viewing the IIC as a necessary complement to their coastal venture exposure — not an alternative, but an essential balancing force.