Wednesday, May 03, 2006

Investor Pitch: Intro to the Market Slide

One of the most important topics in an entrepreneur's investor pitch slide deck is the market size. The point of the market slide is to demonstrate that your company can grow quickly to a size which can command an compelling liquidity event for the investor. VCs vary on how big a market they like to see, but as a general rule of thumb they tend to look for billion dollar markets and $500M would be a typical minimum. Dominating any niche market might be a successful outcome for an entrepreneur but a $25M can't produce a meaningful exit for VCs. If the market doesn't yet exist, as consumer internet didn't when Netscape was funded, than it becomes the entrepreneurs responsibility to sketch out when and how the market will materialize in addition to sizing it. For most entrepreneurs demonstrating market size will simply be an issue to check off rather than something that helps or hurts their pitch. However, if the market is perceived to over-invested than it can be a negative factor. In the case of Cryptine Networks, we are developing security software and we definitely have to combat the perception that security is an over-invested market. Furthermore, if the market is seen to be hot as clean tech or software as a service are now, it the market can also be a positive influencer.

Over my next couple of posts, I'll outline the three basic techniques of sizing a market: top down, bottom up and catalyzing the dream.

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