I am creating a pitch deck to potentially raise a series A round and not sure where to start for projections. How do early stage startups calculate the market size and future projections when there isn't much data in the startup itself to go on?
Let's start with a quick look at the concepts, then we'll delve into how to calculate them.
TAM (Total Addressable Market): Everyone you want to reach with your product.
SAM (Serviceable Available Market): Portion of your TAM that your business model addresses.
SOM (Serviceable Obtainable Market): The realistic prediction of how much market share of SAM you can grab, considering competition, location, distribution channels and any factors that influence your market.
In this case, you would calculate the metrics like:
TAM: There are 19 million local businesses all over the country.
SAM: You're starting with New York and NY has 800K local business (4.2% of your TAM).
SOM: You have competitors who also target the NY market and they have 100K businesses using their product. You are confident you can gain the same amount of customers in 4 years. So your SOM (100K is 12.5% of your SAM and 0.52% of your TAM).
The most important thing to know is that it's not the accuracy of your calculations that matters as much as having numbers that investors will find trustworthy.
The market size isn't governed by the data inside the startup, it's determined by looking at the market itself. If you don't understand the basics of your TAM, SAM and SOM, then, well, you're probably in no position to be pitching for series A.