We are encouraged to think from pitch meetings as a test by fire: if an entrepreneur can avoid deadly traps and defeat the doubt monsters that deceive tech investors, they are rewarded with a golden SAFE note at the end of their quest.
For beginners, in particular, the pitch has become an existential drama, which can lead to poor decisions such as slide decks that are too long, investors failing to prepare for a meeting, and fatally, exaggerating the total addressable market (TAM) they’re hoping for. to compete.
“With TAM, you’re almost guaranteed to be wrong,” Aydin Senkut, the founder and managing partner of Felicis Ventures, told londonbusinessblog.com Disrupt. “It’s either going to be too big or too small.”
Kara Nortman, a managing partner at Upfront Ventures, said the TAM numbers given in a pitch don’t determine whether she’s likely to invest. “I would say [it is] more important to be able to articulate how big something can get and to show that you have a thought process around TAM, if it is early.”
According to Deena Shakir, a partner at Lux Capital, TAM, along with its associated statistics, serviceable addressable market (SAM) and serviceable available market (SOM), are not meant to be set in stone. They are simple planning tools that allow founders to show investors the upside potential of their business, while SOM and SAM help them offset risk.
“When we attend the meeting, we all very sensibly think there’s something interesting enough to potentially fund,” she said. “The way it’s calculated and the way the founder thinks about it doesn’t necessarily tell us about the company or its future, but what the founder thinks about starting a company. And that is much more important at the earliest stage.”
All three panelists said TAM, SAM, and SOM numbers offer a glimpse into a founder’s mindset, but aren’t determinants, as they already have a general understanding of the industries founders hope to compete in.