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By Saurabh Jain

How market size affects startup investment?

Startup investors want to invest in a startup that can grow 100x in the next 5 years. You need to have the potential to win in a big market in the next few years. Thus you need to calculate the market size for your startup and clearly tell the following to investors:

Total Addressable Market (TAM): Total market demand for the product. Example : For a global EdTech startup focusing on school education the total addressable market is 2 billion kids. Say if the product is a mobile game and the estimated average potential price per download is USD 5 then the total TAM will be 2 billion x USD 5 = USD 10 billion dollars

Serviceable Available Market (SAM): Total market of the product that can be reached practically. Example: For a global EdTech startup focusing on school education the SAM will be kids who have access to the internet or some offline digital medium. If a kid is not having any digital access then the EdTech company cannot practically reach the kid. This figure will be smaller than TAM. So if say 1 billion kids have digital access globally and they can be sold a USD 5 app than the SAM will be 1 billion x USD 5 = USD 5 billion 

Serviceable Obtainable Market (SOM): Total portion of SAM that can be captured after competition from competitors. Example: For the global EdTech company this may be just 30% of the total SAM as there may be multiple competitors. So the SOM in this case will be USD 1.5 billion on SAM of USD 5 billion

Investors would not invest if you do not share TAM, SAM, SOM or if they are small.

This is an extract from Saurabh Jain's book - Startup Canvas, available on Amazon