CreateHER Stock

A not-so-secret tactic of venture capitalists (myself included) is that we pay a bunch of attention to a few key things — the company’s team, what kind of product they have, and what market the company plays in. At GAN Ventures, we also pay attention to a handful of other factors, some of which you can see here and here.

But as we look at data pertaining to why we most often tend to turn companies down for investment, it comes down to one thing nearly 80% of the time.

That thing? A startup’s market size.

Why? Because a (standard) VC fund needs companies to reach a large enough market, giving it enough customers, in a short enough period of time, in order for investors to see a return.

For additional proof, this rundown — based on data from CBInsights — confirms what I mean. The top two reasons startups most often fail? There just isn’t a market for a certain product or they run out of cash — likely also because there wasn’t a strong enough market for their product.

Why I’m Bringing This Up

Defining your target market can be difficult because you’re treading an important line: Share vague, pie-in-the-sky numbers or a nebulous target market (everyone! aged 10–80! across the world!) to reach your first clients, and investors will think you haven’t done your research; but, get too granular when trying to explain how you’ll really hit it big and investors will think you’re making wild guesses. The trick is sharing some detail and some grandiose vision — but at the right times.

What does that actually look like?

Here are my insights.

An Example

If you go back down memory lane, you may remember that Uber pitched its market in two simultaneous ways when launching.

First, they planned to get riders on the platform by approaching executives and managers that needed frequent rides to the airport and wanted to do it in a luxury sedan.

Second, they immediately followed that up by mentioning their additional, much wider, market. They were targeting people going out for a night on the town — a middle-class population in medium-to-large cities that wanted an alternative to taxis. In other words, ride sharing.

The point is that they did both. They didn’t just pitch the C-Suite model or the larger market independently of one another. Instead, they painted a picture for investors that included both how they planned to reach their initial market and their vision for reaching a larger market.

To use a sports analogy, let’s call these two market examples “First Base” and “The Home Run.” Or, put another way:

  1. Can you launch a business initially?
  2. And, are you confident in a vision that will help you become a larger company?

So few people do this well, and I think it’s vitally important to share both. Here’s how.

First, Tactics: How You’ll Get to $20M

On a call with an investor, they’re inevitably going to ask about your customer and what you think your market size is. Here, they aren’t looking for fake, pie-in-the-sky numbers. They truly want to know how you’re going to get to your first $20M. So help them. No need to go overboard, though; while they need some specifics here, don’t feel like you have to go too far into the weeds.

All you have to share is:

  1. The potential number of customers you could have.
  2. What percentage of the market you think you’ll get of each of those types of customers.
  3. And, the dollar amount for each customer.

That’s it.

We recently invested in a company who came to us with a potential market of 61,000 customers. The founder told us that 5% of those people were going to pay her $7K each. Given this info, we could then easily 1) Check that she could have 61K customers, 2) Determine if she could actually get 5% of them to pay $7K (and how quickly), and 3) Dig into her pricing.

She made it so easy for us. And it’s one of the reasons we invested in her.

Then, Vision: How You’ll Get to $200M

Almost immediately after sharing how you plan to get to $20M, you also need to share how you plan to get to $200M.

Why does this $200M matter so much? Because it’s the point at which an investor knows they’re going to get a return. Which means every early-stage investor is on the hunt for companies that can plausibly deliver a 10–100x on their investment.

Forced to justify such a large number, this is another area where I see startups consistently struggle. Too often, they feel inauthentic, like they’re being asked to detail exactly how they’re going to shoot for the moon. But listen: Investors know that you don’t know exactly how you’re going to get there. So you don’t have to hide it from them and you’re not being dishonest if you leave out granular details. I mean, think about it — I have a vision for where I’ll be personally in five years, but if I sat here and tried to guess at all the things that would have to happen to get me there, it’d likely be wildly off from what will happen in reality. Meaning, there’s a chance I’ll end up in a similar place as I was hoping, but the ride on the way there will surprise me every time.

So instead of grasping for straws, trying to explain every milestone between today and the day you clear $200M, I’m actually looking to hear your bigger vision. What vision can you sell me on, with confidence, once you know you have $20M under your belt, even if you don’t know all the details of how you’ll get there?

Your Conversation with Investors

Going back to the Uber example, you’ll note how they did this. Again, they reviewed how they’d reach $20M — by getting individuals with disposable income and expense accounts into luxury sedans, building up a technology that would make it simple.

And then, they were going to use this existing technology — vetted, no less, on their initial market — to empower any driver on the planet to give a ride to any human who wanted it. It’s confidence, built on tested ideas and a solid initial customer base.

Again: First, tactics (to get to $20M).

Then, vision (to get to $200M).

While your conversation with investors probably won’t flow quite this linearly, the onus is on you (the startup founder) to make sure you share details of both. Because, whether they bring it up on your initial phone call or not, you had better believe that investors are asking these questions to themselves. So do yourself a favor and let them know exactly what your “First Base” and “Home Run” answers are, so they’re not left filling in the gaps on their own. Because you never know what those answers might entail, and whether you’ll miss your chance to win a new funder, simply because you didn’t speak up.

Originally published at on August 21, 2018.

Helping to give startups the power to create and grow their business wherever they are as CEO of GAN: @GANconnect