The VC Field Guide

5Where = Market

“Where,” or market, is one of the key variables that VCs look at but it's helpful to think about market in terms of what kind of investor you are. At a high level, “where” is referring to the total addressable market (TAM) of what this startup is going after. The term “total addressable market” is a concept or an estimate like, “Hey, how many ping pong balls can fit into an airplane? Hey, how many cars are on the road in the United States?” And to answer those questions, you do a lot of math basically to figure out, okay, this is how many ping pong balls will fit on an airplane, or how many potential cars there are on the road.

Those examples might seem trivial but the reason why TAM is important is because it gives you a sense of opportunity, it gives you some thinking around how large the world is and how much of the market you have to own or contribute to become a very successful business. If a market seems small, do you have to become the “big fish in a small pond” to reach a certain level of success? If the market is large and crowded, how much white space is there really for a startup to grow?

The second high‐level thought process to add when it comes to TAM or market size, is there's also a widely held belief that the winner of a market generally owns the vast majority of that market as well. And when you think about things like search engines, for example, we always think of Google or when you think of facial tissues, we generally think of Kleenex. These ...