What makes an appealing startup? Focus: market size

Here at Nidobirds Ventures, we ask startups just one question: Is your solution appealing, monetizable in a market and organised around resilient founders? Ok, that’s three questions but stay with us.

Market is a defined cohort of people willing and able to buy the product. It’s that simple. In this context we ignore the mouthwatering enormity of SAM and TAM breathlessly advertised in most pitches. An artefact that cannot nearly be accessed in its entirety is a useless metric.

We only care for the SOM (serviceable obtainable market) writ small: Customers (paying) and Leads (willing to pay), extrapolated to a sober number. To twist a golfer rule: TAM is for show, SOM is for dough.

At Nidobirds we need to see customers – a handful in B2B or hundreds in B2C - validating the product by paying money it. Repurchasers get extra points, subscribers count double. “Paying” is the operative word. 100.000 free users who have yet to cross the paywall of a startup app constitute a market of … zero. That is not to say that pre-PoC startups are not investable. Just not for us. At this stage angels might be a better fit.

The opposite investor fallacy, especially for game-changing products, is underestimating the opportunity based on incumbent product offers. Case in point: AirBnB, Uber and Shopify were all initially rejected by investors who deemed the market opportunity too small. Those investors failed to understand that each of these startups would blow up their respective market by changing the value equation.