Total Addressable Market

TAM takedown, green card layoffs, when to ignore investor advice • ZebethMedia

By zebethcontrolPosted on November 18, 2022Posted in EC roundup, Layoffs, Pitch Deck Teardown, Startups, tax laws, Total Addressable Market, Venture, venture capitalNo Comments

When the downturn began, many VCs urged founders to slash their marketing spending. On its face, that’s an effective way to extend runway while cutting costs. Several months later, we’ve since learned that cutting marketing budgets doesn’t make early-stage startups healthier, but it is a great way for VCs to reduce burn rates across their entire portfolio. As Rebecca Szkutak reported this week, SaaS startups that ignored this advice outperformed the ones that followed it. If someone offers you free business advice, it’s probably for their own benefit. In business, if someone’s offering you advice, it’s probably for their own benefit. Which is why I take investors at their word when they say most founders cannot properly assess their total addressable market (TAM). Most founders submit a slide with three concentric circles: TAM on the outside, SAM (serviceable addressable market) in the middle, and SOM (serviceable obtainable market) in the center. Full ZebethMedia+ articles are only available to membersUse discount code TCPLUSROUNDUP to save 20% off a one- or two-year subscription “When this slide appears, most investors chuckle (or weep),” writes Bill Reichert, partner and chief evangelist at Pegasus Tech Ventures. Few investors will wire funds based on how many billions you think you’ll make in year 8. Instead, founders must demonstrate that they have a directional plan and a keen understanding of prospective users. “How many customers will you acquire this year? Next year? The year after?” asks Reichert. And just as importantly, “How many can you convert? How will you reach them?” Don’t spend too much time calculating future revenue or reading Gartner studies for factoids that sound authoritative. Instead, build a bottom-up model that focuses on the size of the opportunity, not the market. “Show investors how you are going to build an ever-expanding cadre of delighted customers,” Reichert advises. “Don’t suggest that your focus is on acquiring market share in a large established market.” Have a great weekend, Walter ThompsonEditorial Manager, ZebethMedia+@yourprotagonist How to turn user data into your next pitch deck Investors might enjoy listening to a founder’s well-rehearsed story, but sharing the right customer data “can definitively power up a pitch deck,” says David Smith, VP of data and analytics at TheVentureCity. “Investors need to see that you’re not being blindsided by easy wins that can go up in smoke within weeks, but are using hard data to build a sustainable company that will endure, and thrive, with time.” SaaS startups that ignored VC advice to cut sales and marketing were better off this year Image Credits: Andriy Onufriyenko (opens in a new window) / Getty Images Many VCs advised founders to dial back their sales and marketing outlays to preserve runway this year. And, as it turns out, many VCs have been giving the wrong advice. According to data from Capchase, a fintech that offers startups non-dilutive capital, “companies that didn’t cut spending on sales and marketing were in a better financial and growth position now than those that did when the market started to dip in 2022,” reports Rebecca Szkutak. Of the 500 companies surveyed, bootstrapped firms showed the strongest growth, said Miguel Fernandez, Capchase’s co-founder and CEO. “What we have seen in this case, and what is most interesting, is that the best companies have actually cut every other cost except sales and marketing.” Dear Sophie: My co-founder’s a green card applicant who just got laid off. Now what? Image Credits: Bryce Durbin/ZebethMedia Dear Sophie, My co-founder and I were both laid off from Big Tech last week and it’s the kick we needed to go all-in on our startup. We’re first-time founders, but they need immigration sponsorship to maintain status with our startup. Do we look at an O-1A in the 60-day grace period? Thanks! — Newbie in Newark Pitch Deck Teardown: Sateliot’s $11.4M Series A deck Image Credits: Sateliot (opens in a new window) Cell phone coverage is built to serve people, which is why Sateliot is launching nanosatellites to provide IoT connectivity for ocean buoys and autonomous drones. The company shared its €10 million Series A deck with TC+, which includes all 18 slides: Cover Problem: “90% of the world has no cellular coverage” Team Solution: “To connect all NB-IOT devices from space under 5G standard” Value proposition: “Near real-time connectivity” Product: “Standard protocol” Why us: “Sateliot is the #1 satellite operator” Market size Competition Business model Traction: “MNOs engaged and technical integrations ongoing” Go-to-Market: “Early adopters program” Interstitial slide Benefit Progress NGO program Slogan Conclusion How much tax will you owe when you sell your company? Image Credits: PM Images (opens in a new window) / Getty Images Getting a startup off the ground is hard work, so asking founders to prepare for an acquisition may sound just as silly as telling them to practice their Academy Award speech in the bathroom mirror. Still: if you’re ready to launch a startup, you must also be prepared to sell one. In an explainer for TC+, Peyton Carr, managing director of Keystone Global Partners, offers a framework for calculating taxation upon an exit and lays out the differences between short-term capital gains and long-term capital gains rates. “As a founder, you’ll need to plan for your personal tax situation to optimize the opportunity set that is presented to you.”

Investors are looking for market opportunity, not just size • ZebethMedia

By zebethcontrolPosted on November 17, 2022Posted in Column, EC Column, pitch deck, Startups, Total Addressable Market, VentureNo Comments

Bill Reichert Contributor More posts by this contributor Interest Rates, Unicorns And What The Fed Means To Silicon Valley Every pitch deck needs to have a “Market” slide. Unfortunately, most entrepreneurs get the market slide wrong. That’s not necessarily their fault. The fault lies in the pitch coaching industry that insists that every deck include a slide with TAM, SAM and SOM. (total addressable market, serviceable addressable market, serviceable obtainable market or variations on these terms.) You can find templates for this slide all over the internet. Almost always, the template has three bubbles. Sometimes they appear side by side, like the porridge bowls of the three bears, and sometimes they are elegantly nested within one another, like a matryoshka doll. The mythical market size claim It’s amazing how this three-bubble market size slide has spread. It seems that everywhere I go on the planet, from Stockholm to Shenzhen, entrepreneurs are using a similar slide. Typically, entrepreneurs claim, “Our global TAM is $X billion, but we are going to start out in a certain part of the world, where our SAM is $Y billion. And we conservatively project that our SOM is $Z billion.” At times, they also show a very precise compound annual growth rate (“with a CAGR of 17.65%”) to demonstrate their analytical rigor. The typical market-size slide is obsolete. It’s clear why entrepreneurs try to pump up their market size. They’ve been told that venture capital investors are only interested in unicorns, and so they assume that the best way to become a unicorn is to go after the largest market possible. Presumably, the thinking is that it is easier to get 2% of a very large market than it is to get 20% of a smaller market. So, they earnestly search for market data that allow them to claim that their TAM is perhaps $56 billion, or $256 billion, or even better, $2.5 trillion. When this slide appears, most investors chuckle (or weep). Not only are the numbers always exaggerated, they are also irrelevant. Market size vs. market opportunity

What investors really think about the TAM slide in your pitch deck • ZebethMedia

By zebethcontrolPosted on November 4, 2022Posted in EC How To, EC TechCrunch Disrupt 2022, startup fundraising, Startups, TechCrunch Disrupt 2022, Total Addressable Market, VentureNo Comments

We’re encouraged to think of pitch meetings as a trial by fire: If an entrepreneur can negotiate deadly traps and slay the doubt monsters that bedevil tech investors, they’ll be rewarded with a golden SAFE note at the end of their quest. Particularly for first-timers, the pitch has become an existential drama, which can lead to poor decisions like overlong slide decks, failing to prepare investors before a meeting, and fatally, exaggerating the size of the total addressable market (TAM) in which they hope to compete. “With TAM, it is almost guaranteed you’re going to be wrong,” Aydin Senkut, the founder and managing partner of Felicis Ventures, said at ZebethMedia Disrupt. “It’s either going to be too large or too small.” Kara Nortman, a managing partner at Upfront Ventures, said the TAM numbers given in a pitch do not control whether she’s likely to invest. “I would say [it is] more important to be able to articulate how big something can become and to show that you have a thought process around TAM, if it’s early.” According to Deena Shakir, a partner at Lux Capital, TAM, along with the associated metrics serviceable addressable market (SAM) and serviceable obtainable market (SOM), aren’t meant to be carved in stone. They’re simple planning tools that help founders show investors their company’s upside potential, while SOM and SAM help them offset risk. “If we’re taking the meeting, we all sensibly think there’s something there that’s interesting enough to be potentially venture-bankable,” she said. “The way it’s calculated and the way the founder is thinking about it tells us not necessarily about the business or its future, but about how the founder thinks about company creation. And that’s much more important at the earliest stage.” All three panelists said TAM, SAM and SOM numbers offer a window into a founder’s mindset, but they’re not determinative factors, since they already have a general understanding of the sectors in which founders hope to compete.