In my posts, Why You Might Not Get The Meeting and VCs Have Flashback Syndrome, I listed four reasons why you might get rejected by a VC. There is a fifth reason worth noting: portfolio concentration.

VCs try to increase the odds of their portfolio returns being high by diversifying their investments across industry sectors. This way if one sector tanks the portfolio could still generate an attractive return. As a result, if a VC already has significant exposure to the market in which you operate they may be less inclined to invest.

However portfolio concentration is not typically the key consideration in making an investment decision. If an outstanding company is presented to them, they may be willing to assume the additional exposure to a sector. As a result, portfolio concentration becomes an increasingly significant consideration if your company only generates average interest amongst the partners.