Thursday, October 05, 2017
Total Addressable Market (TAM) is a standard bit of hype included in venture capital presentations. It is usually a big number to indicate to funders that the company is working in a large sector of the economy and even capturing a small percentage of market share will sustain and grow the business. Everyone knows it is phony, but they all use it anyway. The exaggeration comes in estimating the total market. The calculation might be more than a SWAG (Silly wild ass guess), but it is not much more than that. One should expect venture capitalists to discount it by an order of magnitude. And what of the companies themselves? They know they are exaggerating and one wonders whether they are doing it in the rest of their numbers as well. A hyped TAM is a credibility issue. Entrepreneurs who believe it are drinking their own kool-aid. That is not a good basis for starting and building a company.