The Golden Path to Startup Fundraising — Pimping The TAM
TAM or the total addressable market is a key variable in startup funding. Ballooning the TAM is the name of the game as it gives VCs something they desperately need: An easily understandable story.
Investors, and in particular venture capital investors, are a special breed. There is a joke about venture capital investors, which tells you a lot of what you could otherwise only find out after months of working with them, as in trying to get them to open their pockets for you:
A VC investor enters a bar. Barman asks, what are you having? VC answers I don’t know. What is everybody else having?
A VC investor enters a cab. Cabdriver asks, where do you want to go? VC answers I don’t know. Where is everybody else going?
Those were technically two jokes, but you get the point.
Since VC is risky by nature, corporate guys will always want to make sure they err on the right side. As in nobody ever got fired for investing money in IBM and then the stock price crashed. What that means is they need to cover their asses in case your company is not the next Google. It is your job to help them do that.
As an entrepreneur, you probably noticed how raising funds has a lot to do with telling a story about why you need that money and where it will take you (El Dorado). You need to spin the story in a way that the VC is accustomed to. Doing that will help them understand what you do, sell it to their superiors or investors and, eventually, open their pockets. Make sure your business idea is original, but not the business case.
Pimping The TAM — A Story Investors Like
A story that all of them understand goes like this: The market is massive, USD 100 bn per year in the US alone. If we only get 1% of that market, that makes us a billion-dollar company. The numbers are interchangeable. What matters is they need to be big. The bigger, the better. This is where pimping the TAM enters the scene.
We often use the image of cake when talking about markets and market share. Pimping the TAM increases the…