Brigid O’Brien has seen her share of pitches from founders, and she has a message for many of them: Not every investor will be impressed by your massive TAM, short for total addressable market.
“Often people are chasing big TAMs, which makes a lot of sense, because we’re investing in venture capital, so we’re looking for outsized returns,” O’Brien, a partner at RA Capital Planetary Health, said at TechCrunch Disrupt 2024. “You need to have a market that can help support that.”
“That’s probably one of the favorite slides a lot of people like to do on a pitch deck,” she said. “I’ve seen a lot of pitch decks that have a trillion-dollar TAM. Sometimes I see $100 trillion.”
But that thinking can also lead founders astray, O’Brien added.
“I often say to founders, really be intentional about what your market entry is in a market. Sometimes chasing the biggest TAM isn’t necessarily the first step on your journey building a company. Think about where you have the likely and highest probability of market entry to generate revenue. And then you can also go and chase that larger TAM later by being able to have that cash to help capitalize your company and de-risk some of the tech.”
By way of example, O’Brien pointed to the approach taken by fellow panelist, Gurinder Nagra, co-founder and CEO of Furno Materials. The startup is building small, modular kilns that produce cement with a much lower climate impact. They stand in stark contrast to the massive, $1 billion kilns that have become the standard among industry incumbents.
“What the incumbents have been really good at is building really large capital-intense assets, which have been their moats for the last 100 years,” Nagra said. “But in an environment where you need to change, that all of a sudden becomes a weakness. So how can you leverage that as a startup? Because speed is your advantage.”
But rather than confront incumbents head on, Furno is starting by finding customers in markets that are currently underserved by cement producers.
“We did boots on the ground travel and trips and talked to some of these concrete producers. And sure enough, they’re like, ‘I keep getting unallocated cement. I got some last week, but I didn’t get it this week.’ Because they’re not a priority. They’re a smaller-scale customer,” Nagra said.
Eventually, when the company has established itself, it’s likely it’ll start wooing customers who already have cement supply contracts with incumbents. “There’s not much loyalty in the cement business,” he said.