How can you identify new investment opportunities using market sizing?

2 Why is market sizing important?

Market sizing is a key component for investment bankers as it helps them recognize new investment prospects, such as underserved, emerging, or growing markets with high profitability and scalability. It also enables them to assess existing investment opportunities by estimating the market share, growth rate, and competitive advantage of a target company or industry. Moreover, market sizing allows them to compare different investment scenarios by forecasting how the market size and dynamics will be altered under various assumptions, such as demand, supply, regulation, technology, or competition.

3 How to do top-down market sizing?

Top-down market sizing is a common and simple way to estimate the size of a market. To do so, you must first define the market scope and boundaries, such as the product or service category, the geographic region, the customer segment, and the time period. Then, look for a reliable source of data that provides the total market size or a proxy for it, such as industry reports, government statistics, trade associations, or expert opinions. Lastly, apply relevant filters or assumptions to narrow down the market size to the specific segment or niche you are interested in, such as the penetration rate, the adoption rate, the price point, or the quality level.

4 How to do bottom-up market sizing?

Bottom-up market sizing is a useful way to estimate the size of a market when data is scarce or unreliable. To do so, first identify the key drivers or components of the market demand or supply, such as customer numbers, purchase frequency, quantity of purchase, or unit price. Then, collect or estimate the data for each driver or component by using primary research, such as surveys and interviews, or secondary research, such as benchmarks and extrapolations. Finally, multiply or add the data for each driver or component to calculate the total market size or a range of possible values.

5 How to use market sizing to identify new investment opportunities?

Market sizing can be used to identify new investment opportunities by revealing the gaps, trends, and opportunities in a market. To do this, you must conduct a market analysis to understand the size, growth, segmentation, competition, and profitability. Additionally, you must identify the unmet needs, pain points, or preferences of customers or potential customers. After that, generate ideas for new products, services, or business models that can address these needs. Finally, validate and prioritize the ideas based on the market size, attractiveness, and feasibility of each idea.