Can VC be the customer?

I am working hard with lots of start-up clients on their business models. One of the critical issues that we keep coming back to is "who is the customer."

In my model the customer is the person who pays the bills. There might be users, stakeholders, investors -- but the customer is the person who pays the bills.

I find a number of smart business owners that are designing the model of the start up who believe that the business needs only to aggregate users to their product/service-- and that will create a value that will be purchased by a venture capital firm.

They want to run on the fuel of investment from stage to stage, from phase to phase, until they have built enough perceived value that they can secure a significant round of capital at which point they think they have hit the gravey train.

This feels very "1990's bubbley" to me. But my lack of enthusiasm for this model seems to be a significant barrier to my earning their business to do business development marketing. I end up "arguing" with a potential client which never bodes well for sales.

So, my question:
Can the VC be the customer?

Asked like that, it's virtually the definition of a bubble, that all the cash comes from investors. But it may be that you're asking the wrong question.

I'd break it down like this.

Users/customers can certainly be worth more than their evident income-generating value. And when that's true, it's often the case that there's one or more volume tipping point. Below the tipping point, whatever monetization strategy is pursued, costs are going to outweigh revenues, even ignoring fixed costs. Above that tipping point, it becomes possible to produce profits.

It's evident that in most such situations, risks run high. But if there are investors who have the appetite for the end result, they may be interested. I'm getting mixed messages as to whether this is a case like I've described, but let's assume it is.

In a given investment round, investors buy into that risk. That can be a rational choice if they believe that the proposed activities will ultimately yield high value, regardless of whether that's shown by profit during the life of the round.

However, their risk is increased by two factors. First, a future investment round has to succeed or the business will simply run out of cash. Second, later investors tend to have power over earlier investors, so a successful round doesn't guarantee a return. These risks run higher than the risk in the business itself, so in theory investment money will be relatively expensive.

So the question may actually be,

Can investors be interested in this particular company with no prospect of achieving profitability during the current investment round? Well, that's a selling question. But 'selling' a pitch to a VC doesn't make the VC the customer. Figurative sales don't produce literal customers.

At first I thought you should treat it like any other exit strategy, but this is how they intend to continually run the business. Maybe it helps you accept the situation if you look at potential VCs as the customer.