Beyond the TAM slide: what investors really want from a startup pitch deck

Venture capital investors receive dozens of cold emails and slide decks from founders every day. The task for founders crafting a pitch for investment is to stand out amid a deluge of other startups vying for attention. So why do so many companies adopt similar templates in their decks, especially when investors admit to being fatigued by such a high volume of cookie-cutter pitches?

One ever-present data point in the average startup pitch deck is the total addressable market (TAM). The TAM slide is a startup’s attempt to quantify the size of the pie they’re targeting. The only problem? “The way the vast majority of startups present their TAM data is just totally meaningless,” Dan Bowyer, Partner at early-stage B2B investor SuperSeed, tells HSBC Innovation Banking.

In this article we’ll outline founders’ options for demonstrating ambition beyond the TAM slide, exploring more precise and focused ways to express your scaling plans.

Why TAM is so popular in pitch decks – and why it’s a flawed metric

In the final series of HBO’s Succession, corporate titan Logan Roy’s offer to acquire a rival media organisation is topped by a high, reckless bid from his kids. Equally irritated by losing and by his children’s frivolousness, he barks down the phone, “Congratulations on saying the biggest number, you [expletive] morons.”

Are there any Succession parallels for founders to heed? “Looking at most TAM slides, it does seem like founders are just trying to say the largest number possible in the hope it excites investors,” says Dan Bowyer. “You’re building an edtech startup? That’s great. But telling me the global education market is $800 billion, or $1.3 trillion, doesn’t do much to help me see how you’re going to get there.”

Many founders try to put their TAM in context by bringing in complementary metrics, such as the serviceable addressable market (SAM) and the serviceable obtainable market (SOM). The SAM represents the proportion of the TAM you reasonably expect to be able to capture with your products and/or services as you scale over time. Then, your SOM is the size of the market you view as realistically winnable right now based on what you’ve already built.

Speaking with HSBC Innovation Banking, Charlie Simionescu-Marin, founder of seed-stage fintech Quanted, says, “The TAM can be helpful as a kind of sanity check against your SAM and SOM – if your SOM is 80% of your TAM, for instance, one or both data points aren’t realistic.”

Lots of founders rely upon some form of this diagram to visualise their current market penetration and growth ambitions in context (the context being the TAM’s ‘whole pie’).

So what are the pros and cons of including the slide in an investor deck? “We do have a market opportunity slide for pitches,” says Quanted founder Charlie. “We have the ‘big number’ there, in that we claim that our TAM is $40 billion. But we rarely if ever actually focus on the TAM in VC meetings.”

Founders like Charlie opt to highlight their TAM because some of the world’s most respected investors have spent many years communicating the importance of market size. Sequoia Capital founder Don Valentine said that he paid close attention to market size because ‘if you don't attack a big market, it's highly unlikely you're ever going to build a big company’. And founders include TAM in their decks because for better or worse, it’s a near-universally understood concept that communicates market size.

Endorsements from the most prominent venture firms mean that founders may see the TAM slide as a way to emphasise that they’re following industry best practices when it comes to company-building. But still, investors and founders alike understand that aspects of an early-stage company’s TAM could well be unrealistic. As early-stage investor Antler says in its guide to TAM, SOM and SAM, “TAM is the ‘pie in the sky’ number. It represents the absolute maximum possible revenue that a business could generate in the market, if every single potential customer is converted into a paying customer, and each of those customers is providing the full maximum revenue.”

Charlie says that in certain contexts, looking at TAM can add value: "If you're innovating in a less well-understood sector, it can be hard to gauge estimated compound annual growth rate (CAGR). Although it’s not as solid a metric, your TAM can act as an anchor that gives you a rough CAGR proxy. It also helps founders and VCs gauge attractiveness for potential new market entrants and thus competition over time.” Balderton Capital investor Claudia Rowe agrees, suggesting that “in established billion- or trillion-dollar markets, it’s helpful when founders list existing competitors and their revenues. As a result, we can spend our time discussing why they’re better than the competition and what the upside of winning market share will be.”

But Charlie raises issues with the verifiability of most TAM data points: “What makes TAM numbers questionable is that TAM calculation isn’t very consistent – two founders working on the same value proposition could probably come up with two quite different numbers for their TAM, depending on their ambitions and operational constraints.” It’s also important to factor pricing into your thinking, as Claudia points out: “It’s worth remembering that if your product is 10x cheaper than existing solutions, in theory your future TAM will be 10x smaller.”

Dan believes that founders have to think about telling their companies’ growth stories beyond their TAM, SAM and SOM numbers. “Of course, investors are ambitious people, and we want to get excited by founders with big ideas and big plans,” Dan says. “But that inspiration, and that feeling of a potentially phenomenal partnership taking shape, happens in the meeting, in the room, and not because of a big number you put in front of me on a slide.”

With this in mind, what’s the best way for startup founders outline the size of the opportunity they’re tackling?

One slide fits all: a better way to showcase your growth ambitions?

For companies at the pre-seed and seed stages, “investors don’t need 15 or 20 slides – there just isn’t that much to show,” says Dan. Instead, founders could foster better conversations with investors by summarising milestones achieved to date, short-term plans and goals, and a slightly longer-term view of expected key achievements. Dan describes this structure as sequential ‘missions’ – “where ‘mission’ means ‘a thing to be achieved’, not to be confused with a grand mission statement.”

Dan recommends that founders map each mission to the ideal customer profile (ICP), which will very likely shift over time as the business grows, finding new markets and launching new products. In early-stage companies, the time horizons for these missions are necessarily compressed. “For a startup approaching its seed funding round,” says Dan, “Mission 1 is likely to be the fundraising itself. Mission 2 might then be capitalising on the funding round, in terms of hiring, new products and features that will be built, and getting to the Series A round. Mission 3, then, is how to scale in the markets and verticals where you’re best positioned to win market share.”

Why does this type of plan represent a better investor pitch than a TAM slide? “Investors are realistic,” says Dan. “They know the founder’s vision won’t pan out perfectly. But they also want to see founders who have focus and discipline, and who understand that they can’t win every ICP in every market all at once. Outlining stepped scaling missions is more realistic – less utopian – than a TAM slide, and it gives investors a much more concrete idea of the founder’s approach to reaching scale.”

Another useful output of the mission structure is that founders can articulate how missions will be achieved. Instead of saying, “We’re targeting a $10 billion market,” growth missions articulate how a company plans to carve out its share of the market, who its initial customers will be, and what it needs to achieve in the short and medium term to grow.

And does Dan have any more golden rules for early-stage founders pitching investors? “Especially for early-stage companies, don’t even talk about exits. If I see a sniff of an exit plan, I’m going to think that you’ve got half an eye on a chunky payday in a few years. Every founder is entitled to think in the way they want about their company, and some investors take a different view, but exits or IPOs are a long, long way away – those conversations are for much later.”

Final thoughts: for a differentiated investor pitch, look beyond TAM

Big numbers are exciting, but even newer startups need to give investors a sense of what lies between their company and true market-dominating scale. Investors aren’t just looking for big markets, they want to know how a company will build traction and scale in the near term.

Despite its use as a “helpful starting point for broader discussions”, in the words of Balderton’s Claudia Rowe, in the eyes of many investors and founders the TAM slide too often distracts from founders’ short-term aims and priorities.

Presenting a sequence of achievable ‘missions’, corresponding to tangible goals on product, hiring and more, could be a way for founders to demonstrate ambition while maintaining a connection to the real-world challenges that all startups and scaleups have to face.