I have been working on a startup idea for the past few years. The prototype is out there and I have a few hundred people using it. My adsense revenue is about as much as I spend on costs. At this point I feel that the only way to take it to the next level is to get some funding and do more agressive advertising (as I'm only going off word-of-mouth at this point)
The only problem is that my target audience is very small. The product is only applicable to people tho fly airplanes. According to wikipedia, thee are 594,285 active certified pilots in the USA. So basically my product has an upper limit of 594,285 users. Even if I were to grow to 100% penetration (which I think is very possible considering my product is very unique and proven to be successfull), are the numbers too small potatoes for investors to give me funding?
It's never about just one metric.
If you maximum users is 594,285... but each user pays your service $1,000,000 per year in subscription fees, you would have a very nice company (in fact even with just 5 users you have a nice company).
Obviously that is an extreme example, but it illustrates the point that you can't judge your ability to get funded based on market size alone.
With that in mind, there is no useful answer to the question you are asking.
And what about other countries?? Chances are that if you're offering an innovative tech solution which you think is totally compelling, it'll sell overseas as well. In fact, it might even sell better overseas....
And if you think a VC wouldn't fund you, there are plenty of alternatives: bank loans for instance, or private equity, or people (or institutions) with cash and knowledge of the aviation industry. Make contacts; worldwide.
I think half a million users is a good size for a market. But it depends of the ambitious of each one.
With software you can think globally. As you said, half million only in USA...
The first question would be - are these "couple of hundred users" paying for your service? Free users vs paid users are two different populations.
Second, what type of onboarding / incentive do you provide to users to "spread the word" ? A good example is dropbox, and here is a good breakdown of their onboarding process.
Third - how much money do you really need? Do you want to get married to a VC, who will no doubt want 10x returns and an M&A event? Or is this more of a micropreneur company that can financially support you and a modest staff? (there is nothing wrong with being a startup that isn't going to be the next groupon or twitter)
Market size doesn't matter to banks, SBA loans and some angels. VC's deal with OPM (other peoples money) so they care much more about market size and potential returns.