In my humbling journey as a start-up founder, we had the opportunity to interact with some of the top venture capitalists (VCs) in India.

There was always one question that all VCs ask - “What’s your TAM?”

The right answer to a VC’s ear is that our TAM is infinite 😛

To the lucky folks out there, TAM stands for Total Addressable Market - which defines the size of the market and opportunity to create a successful business for it.

However, the question is deeply flawed when evaluating a young company.

If a market is already huge, there would already be large companies operating there - that’s just a basic fact of a supply / demand based market. In such a market, it’s impossible for a small company to take on a large corporate head-on.

All mega successful companies today, started with a niche problem that grew exponentially over the coming decades. A classic example is NVIDIA which began by selling GPUs to folks like me who just wanted to play video games on their PC in the 1990s / 2000s.
The PC market itself started as an extremely small niche back in 1970s - and the trend keeps going back.

An Indian example is RELIANCE - started by, Shri Dhirubhai Ambani, selling textiles. As machine-based textiles market grew big, they setup factories to produce their own synthetic polyester (who here remembers Vimal Clothing?)

This positioned them up to seize the petroleum refinery business we know today. With this strength, they stepped into the world of telecom to take on other large companies & expand the market even further. Now that’s a masterful execution! 🙏🏻

It would be impossible for a young company to just straight away jump into building their own telecom network - which is practically limitless TAM though.

A startup in their efforts to raise capital & answer questions around TAM, end up massively inflating the potential market. In data science there is a saying -

“If you torture the data enough, it’ll give you the answer you want.”

In my opinion, excel based market sizing is never realized. Exponential growth of a new market has a life of its own, evolves on its terms & is influenced by countless factors.
A startup can & should definitely play a role in influencing this evolution.

Once a VC backs you, startups are under pressure to tap this market.

The most common way for a VC funded startup is by throwing money at it.
This is done via heavy discounts to generate an artificial demand. This demand largely evaporates when the discount goes away. So more money is raised to give more discounts and a vicious cycle forms.

To state the obvious, VCs have the term “venture” in their name which means risk. The risk is whether a small niche market will become huge or not.
Do you think NVIDIA could predict that 3 decades later, their GPUs will be used to train LLMs?

However, today VCs classify themselves as “growth capital” too.
A concept I frankly don’t understand, alongside the notion of a sustained loss making business.

The best tool at the disposal of startup is to stay alert & agile. They should focus on owning a substantial share of the smaller market niche. This positions them to be strong enough to pounce on new opportunities as they present themselves.