it is not easy to assess market opportunities.
we all look for very large opportunities.
what is a large opportunity?
Do not look for analysts to answer that question.
they typically say that in 5 years it will be a $2 billion market with 0.6 probability. thanks.
i will be alive 5 years from now with 0.6 probability. does not really help.
actually, what size matters, depends per VC.
each VC has a different answer to two questions
- how much do they typically invest?
- what moves their needle? = what size of returns make a difference to their fund.
try to understand these parameters in advance.
regardless of their answer. try to answer to your self, what type exit matters to you. it will help you make a lot of decisions along the way. including if you want VC money or not.
in israel many VCs would like to invest up to $10M out of $40M total investments into a company. they would like to see at least $50M back. if an israeli VC owns 20% of a company, this means a $250M exit. how many of them occured in in israel since year 2000?
if you do a good job categorizing your company (usually 3 words or less) the answer of market size typically starts to answer itself.
people do an awful job at assessing market size.
the typical problem is to confuse the market with the available market.
many times this is called TAM or total available/addressable market.
if i start a corner falafel store, i am not addressing the $20B/year food market.
because i am limited. by what?
by my location, my channels, user alternatives, tastes, fashion, pricing(and costs), frequency of use, marketing effectiveness, cost per lead, margins, competition, timeliness of entering the market, timeliness of interacting the customer, brand…
try using your market size assesment methodology on a flafel store or an aroma branch. what did you get to? what are factors of growing your TAM?
it is a complex problem.
i will try to simplify it.
if you show me that your company and biz model can:
- sell $50M per year
- with good visibility into future revenues
- at 40% margin or higher
- with year over year 30%+ growth
then you pass.
we will try to tackle the market size problem together in future meetings
and post investment. hopefully, we will solve this issue together before round B