Most investors and others who attend the demo day dismiss the “our market is very large Gazillion dollars” hype that startups state in their size of market slide. Since the size of market is part of the 3 step process to raise capital from institutional investors, spending enough time on documenting the assumptions you have made are important, as well as having a believable set of numbers to back up your claims.
In their quest to ensure that they are excited about how large it is, most entrepreneurs only do a top-down market analysis and usually mistake total market size with addressable market. For example, if your app helps teenagers communicate with each other using only animal pictures, then technically all teenagers are your target market. Realistically, if you factor in the # of teenagers who have cell phones with good camera, who have reliable Internet connection and then those that like animals it is likely to be much smaller.
If you market is small, it is small. No amount of you trying to make it big is going to make you look credible.
There are 2 types of audiences you are trying to convey to and 3 most important things you need to articulate about your market.
The audience that knows the market and instinctively knows it is big. These are the “insiders” who have been following many other startups in the same market and understand either unmet needs or displacement opportunities.
The second audience (the larger set) that does not know the market at all and needs to see a clear breakdown of total market size, immediate opportunity and complete potential.
The market slides you put together in your overview deck, is aimed more at the 2nd audience than the first one. The insiders only need to know that you have thought through the size of market.
For the uninitiated, you need to keep in mind.
1. You have credibly broken down the “large” market into addressable chunks and have a credible process by which you came up with the market size.
2. Walk your audience through your thinking process on how you came up with the size of your market to gain their appreciation for your understanding of the space.
3. Cite as many good dependable sources in your market slide to show that you have done a good landscape map of your market.
I would highly recommend you do both a top down, as well as a bottoms-up analysis to come to your market size.
Here are 3 market slides from companies I have seen. The first one from Tealet is pretty poor, the one from Mattermark is better, but the one from Square is the best.
If you were presenting in front of a large audience, I would use the Mattermark slide – large size fonts. If you are making a market size slide for the operating plan deck, I’d use the Square format. If you were looking to put a slide on Angel.co for your profile, I’d use the Tealet approach.