What investors really think about the TAM slide in your pitch deck

Welcome to TechCrunch+ Friday

Are you ready to launch a bajillion-dollar startup? Before you start: are you planning to build a centaur, a unicorn, or perhaps a decacorn?

Startup pitching has become an existential drama, in part because so many founders exaggerate the size of the total addressable market (TAM) in which they hope to compete.

At TechCrunch Disrupt, I spoke to three investors about how they use TAM to guide their decision-making. Everyone agreed that the number itself is far less important than the process that produced it.

“The way it’s calculated and the way the founder is thinking about it tells us not necessarily about the business or its future, but about how the founder thinks about company creation,” said Deena Shakir, a partner at Lux Capital.

“It is almost guaranteed you’re going to be wrong,” said Aydin Senkut, the founder and managing partner of Felicis Ventures. “It’s either going to be too large or too small.”

Kara Nortman, a managing partner at Upfront Ventures, said the TAM numbers given in a pitch do not control whether she’s likely to invest.

“I would say [it is] more important to be able to articulate how big something can become and to show that you have a thought process around TAM, if it’s early,” she said.

Choosing a mythical TAM won’t put dollar signs in investors’ eyes, as unrealistic numbers reflect unrealistic expectations, a red flag for any VC.

As Senkut said, “the plan doesn’t have to be accurate — the plan has to be directionally correct.”

Thanks very much for reading TC+ this week!

Walter Thompson
Editorial Manager, TechCrunch+
@yourprotagonist

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