Many startup founders struggle to secure investment, not because their idea lacks potential, but because they fail to convincingly demonstrate the size and accessibility of their market. Investors need to see a clear path to revenue and scalability before committing capital, and market sizing plays a crucial role in that decision-making process.

A well-structured market sizing analysis helps investors assess risk, estimate potential returns, and determine whether a startup has the opportunity to grow into a substantial business. Vague or overly ambitious market estimates, however, can raise red flags and deter investment.

This article explores how investors assess market size, common pitfalls founders make, and how to present market sizing effectively in a pitch deck. By understanding what investors look for – particularly in TAM (Total Addressable Market), SAM (Serviceable Available Market), and SOM (Serviceable Obtainable Market) estimates – founders can significantly improve their chances of securing funding.

Why Market Sizing is Critical for Investors

How Investors Use Market Size Data

Market size data influences several key investment decisions:

• Scalability & Revenue Potential: Investors want to know if a startup operates in a market large enough to sustain long-term growth.
• Risk vs. Reward: If a market is too small, the upside may be limited. If it is too large and unfocused, the startup may struggle to gain traction.
• Valuation & Funding Amounts: Startups in larger markets tend to attract higher valuations, but only if they can demonstrate a credible strategy to capture a share of that market.

What Investors Want to See

Investors expect a well-defined breakdown of TAM, SAM, and SOM, backed by credible data sources. They also look for:

• A clear market entry strategy that shows how the startup will penetrate its target segment.
• Competitor benchmarks to validate assumptions and highlight differentiation.

Importantly, investors do not just look for massive markets – they assess how much of it a startup can realistically capture. For example, a £5 billion market is irrelevant if a startup can only access 0.01% of it due to competitive or regulatory barriers.

How Investors Evaluate Market Sizing: TAM, SAM & SOM

1. Total Addressable Market (TAM) – The Big Picture

TAM represents the total demand for a product or service if there were no competitors or limitations. It provides a broad view of an industry’s potential.

How Investors Assess TAM:

• Industry reports from sources like McKinsey, IBISWorld, and Statista.
• Market trends, adoption rates, and regulatory factors.

Example: If the global electric scooter market is worth £20 billion, that’s the TAM for a new scooter startup. However, TAM alone does not indicate accessibility or competition.

2. Serviceable Available Market (SAM) – The Realistic Target

SAM is the portion of TAM a startup can realistically serve, factoring in geography, business model, and infrastructure constraints.

Investor Perspective:

• Does the startup have a clear plan to reach this market?
• Are there significant barriers such as licensing, distribution, or competition?

Example: If an electric scooter startup is only targeting UK cities, where licensing and infrastructure support growth, its SAM might be £500 million.

3. Serviceable Obtainable Market (SOM) – The Near-Term Opportunity

SOM is the realistic market share a startup can capture in the short term based on its go-to-market strategy and competitive positioning.

Investor Focus:

• How will the startup gain market share?
• Are customer acquisition costs (CAC) and pricing strategies viable?

Example: If the scooter startup estimates it can capture 5% of the UK market within three years, its SOM would be £25 million. Investors assess whether this estimate is realistic based on current traction, customer demand, and competitive dynamics.

Common Mistakes Startups Make in Market Sizing

Overestimating TAM and assuming easy market capture:
Claiming “we are targeting a £100bn industry” without a clear entry plan is a major red flag. Investors care about how much of the market a startup can capture, not just how big the industry is.

Ignoring market segmentation and accessibility barriers:
Many B2B SaaS startups assume they can instantly access global enterprise clients. In reality, sales cycles, regulatory hurdles, and competition can limit immediate reach.

Using vague or outdated data sources:
Investors prefer credible industry research over assumptions or outdated reports. Sources like PitchBook, CB Insights, and government data add legitimacy.

Failing to differentiate between TAM, SAM, and SOM:
Presenting only TAM without explaining the startup’s specific market opportunity weakens an investment case. Investors need to see a logical funnel from TAM to SOM.

How to Present Market Size Data in a Pitch Deck

Best Practices for Market Size Slides

• Use clear visuals such as charts and graphs.
• Provide a TAM, SAM, SOM breakdown with concise explanations.
• Cite credible data sources to support claims.
• Keep it brief and to the point – investors appreciate clarity over complexity.

Investor Expectations at Different Funding Stages

• Pre-seed & Seed: Investors focus on market potential and early traction.
• Series A: Investors expect detailed, data-backed growth projections.
• Series B+: Investors require in-depth market penetration and expansion plans.

Case Study: How a Strong Market Sizing Pitch Helped Secure Funding

Example: Revolut
When Revolut pitched investors, it positioned itself within the global neobank market but strategically focused on digital-first banking adoption in Europe as its SAM. Its ability to demonstrate both market size and customer adoption trends played a crucial role in attracting investors.

How Investors Use Market Sizing to Make Investment Decisions

Assessing Market Growth Potential

• Is the market expanding or contracting?
• What are the barriers to adoption?

Comparing with Competitor Benchmarks

• Investors analyse existing market players to gauge feasibility.
• Example: SaaS startups often compare market penetration rates with established competitors.

Estimating Startup Valuation

• Market size directly influences revenue forecasts and valuation multiples.
• Larger, high-growth markets tend to command higher valuations if there’s a credible path to scaling.

Case Studies: Startups That Got Market Sizing Right

1. Airbnb – Successfully redefined the travel accommodation market by focusing on a segment (short-term rentals) rather than the entire hotel industry.
2. Monzo – Used a niche, digital-first banking model to capture a highly engaged customer base before expanding its market reach.
3. Tesla – Entered the market as a premium product before scaling to a mass-market EV strategy, demonstrating a step-by-step approach to market penetration.

Conclusion

Market sizing is a fundamental part of securing investment. Investors do not just look for large numbers; they seek realistic, well-researched projections that demonstrate a startup’s ability to capture market share.

By breaking down TAM, SAM, and SOM effectively, founders can build stronger investment cases, avoid common mistakes, and improve their chances of securing funding. Before pitching, startups should refine their market sizing strategy, ensuring their assumptions are data-backed and credible.

For founders preparing for fundraising, taking the time to get market sizing right can be the difference between attracting investors and being overlooked.