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Agree and disagree. Agree: Early-stage investing is rarely about accurately sizing a market. And nothing can be boiled satisfactorily down to an Excel model.

Agree and disagree. Agree: Early-stage investing is rarely about accurately sizing a market. And nothing can be boiled satisfactorily down to an Excel model. Disagree: But you still have to do it. For yourselves, if not for VCs. Presumably, VCs want to see that you've thought long and hard about the market opportunity, about the competition, and about your marketing plan and business model. And you should have. Your market sizing will never be pitch-perfect, but you can't just wave your hands in an investor meeting and declare that the entire exercise is bunk. I would argue that, if you're being asked to "dig deeper" into market sizing, or even if you're being questioned at all about the market size in your meetings, it's really a proxy question for something else. Maybe they find the idea narrow, and they want to be convinced it can broaden to other segments. Maybe they think you're being insufficiently ambitious. Maybe it's the opposite; they think you're being wildly naive. Whatever the case, "What's the size of this market?" is a question their analysts can probably guesstimate in a few days' worth of Excel monkeying. That's not really what they're getting at. What they really want to know is how you think about the business side of your startup (or indeed, whether you do).

danieltillett 11y ago
Yep it is basically a way of saying no without having to say why. Since no one can really defend their market analysis, anyone can shoot you down by querying it without having to think.
Frqy3 11y ago
The result of a model is no better than a gut estimate. But the process of developing the model, working out what the factors are that will impact market size (and your share of it), working out what things you need to monitor more closely or focus on for biggest impact is where the value is.
- jonnathanson 11y ago
  Exactly. I'm not sure if there is any investor consensus on this, but I'd be willing to stake a claim that a well-reasoned market analysis is superior to a putatively "accurate" market analysis. And by well-reasoned, I mean an estimate that accounts for and emphasizes the critical and necessary variables in the sizing and in the approach. Perhaps with some sensitivity analysis thrown in for good measure. If your model is logical and flexible, you can work with investors to adjust it and play around with different scenarios. If your model depends on an inflexible degree of supposed precision, you're at high risk of deluding yourself. Savvy investors can probably sniff that out. All things being equal, it's probably best to present a model that is simple enough to be easily grokked; flexible enough to be adjusted on the proverbial back of an envelope; and dependent on a set of factors that you've thoroughly researched and confidently believe are the factors to focus on. So you steer the conversation to the factors, and less to the outcome of the model under your presented scenario. If you've got the right factors, you can model out any number of scenarios. (And you should probably have done this already prior to the pitch, so that you're prepared to speak to a given range of hypothetical outcomes).

danieltillett 11y ago

Yep it is basically a way of saying no without having to say why. Since no one can really defend their market analysis, anyone can shoot you down by querying it without having to think.

Frqy3 11y ago

The result of a model is no better than a gut estimate. But the process of developing the model, working out what the factors are that will impact market size (and your share of it), working out what things you need to monitor more closely or focus on for biggest impact is where the value is.

jonnathanson 11y ago
Exactly. I'm not sure if there is any investor consensus on this, but I'd be willing to stake a claim that a well-reasoned market analysis is superior to a putatively "accurate" market analysis. And by well-reasoned, I mean an estimate that accounts for and emphasizes the critical and necessary variables in the sizing and in the approach. Perhaps with some sensitivity analysis thrown in for good measure. If your model is logical and flexible, you can work with investors to adjust it and play around with different scenarios. If your model depends on an inflexible degree of supposed precision, you're at high risk of deluding yourself. Savvy investors can probably sniff that out. All things being equal, it's probably best to present a model that is simple enough to be easily grokked; flexible enough to be adjusted on the proverbial back of an envelope; and dependent on a set of factors that you've thoroughly researched and confidently believe are the factors to focus on. So you steer the conversation to the factors, and less to the outcome of the model under your presented scenario. If you've got the right factors, you can model out any number of scenarios. (And you should probably have done this already prior to the pitch, so that you're prepared to speak to a given range of hypothetical outcomes).