Key Takeaways
- Market size matters less than market dynamics. A growing small market beats a static large one.
- The TAM number in a pitch deck is almost always too large and the serviceable addressable market too optimistic.
- The market that does not know it needs your product yet is often the best one to be in.
Every venture investor says they look for large markets. Saim Abbasi is more specific: he looks for markets with specific characteristics that indicate they are about to get large, rather than markets that are already definitionally large by total addressable market estimates.
The TAM Problem
Total addressable market estimates in startup pitches are almost universally calculated by multiplying a large number by a plausible penetration rate. The math produces impressive numbers. The assumptions embedded in the math are rarely examined. Saim's approach is to work from the bottom up: how many specific customers would buy this at this price in the next 12 months, and why? The resulting number is smaller than the TAM estimate and more accurate than anything else.
Market Dynamics Over Market Size
A market that is growing rapidly at modest absolute size is often a better investment than a large market that is stable or declining. The growth creates opportunities for new entrants to take share from incumbents who are not adapting fast enough. The stability of a large market often reflects incumbent strength that is genuinely hard to displace.
The Underserved Segment
The specific market signal Saim finds most compelling is a clearly identifiable customer segment that is actively using workarounds because no product adequately serves their specific needs. The workaround is evidence of demand. The absence of an adequate product is evidence of opportunity. The combination is where many of the best early-stage investments begin.
"Show me a market that is growing fast and has players who are not serving it well, and I will show you where to build."