The Rise Of The Chimera: Eating Unicorns For Lunch

Understanding The Market Size Dynamics For Company’s Worth $1+ Billion (Unicorns) to $1+ Trillion (Chimeras)

It’s 2021 and human civilization has now created a number of companies worth over $1+ Trillion dollars, including Amazon, Alphabet, Apple, Microsoft, Facebook, and Saudi Aramco. All are digital first companies, with the exception of Saudi Aramco. These $1+ Trillion companies have grown far beyond the $1+ Billion dollar “unicorn” valuation status in their size and capabilities. Our fund has coined companies worth $1+ Trillion as “chimeras”, an organism with a mixture of DNA from different species, often shown in Greek mythology as a lion, a goat, and snake. These chimeras are 1,000x larger than a baby unicorn starting at $1+ Billion valuation, and they have grown to be the hungriest and mightiest acquirers of unicorns.

The future of human civilization has only two options: 1) Humans will cease to exist, or 2) More and larger $1+ Trillion dollar companies will be created (and hopefully that’s not because of inflation). As companies evolve their capability to go after new and larger market opportunities continues to increase. Additionally, overtime the maximum potential size of market opportunities continues to increase as the population of humans and enterprises (the “number of customers”) grows and the wealth of consumers and enterprises (the “ability to pay”) improves.

Breaking the $1+ Trillion valuation number has shown humanity that what seemed impossible is now possible. It’s a psychological marker. It conveys the point that market size opportunities that are truly massive exist here and now, and even larger opportunities, which have yet to be created or scaled, will likely exist in the future. But what will those massive market opportunities look like? And what does a “massive market size” mean? How big is the number on the far side of the market size opportunity spectrum for what is possible? This article explores the full spectrum of what is possible for companies in terms of market size, revenue potential, and valuation.

Humans have a difficult time thinking on large scales. Everything larger than a number with 6 or 9 digits is just “huge”, and humans often don’t have great perspectives for thinking on large scales. A trillion is a 1 with 12 zeros after it. It’s quite a mind boggling number for most people to think about and this likely stems from the fact that it wasn’t required to ponder at these scales in the past to perpetuate our own existence. The range of market size opportunities for companies worth $1+ Billion to $1+ Trillion is massive, it’s a 1,000x difference in magnitude. It’s important for founders and investors to understand this difference in market size potential in order to identify the largest market opportunities to create and invest in.

The term “unicorn” is defined as a company with a valuation worth $1+ Billion and the number of unicorns has continued to grow each year. According to CB Insights, “As of September 2021, there are more than 800 unicorns around the world. Variants of unicorns include a decacorn for companies valued at over $10 billion, and a hectocorn for companies valued at over $100 billion.” With the recent entrants of companies breaking the $1+ Trillion valuation, we would like to propose a new category name for these type of companies and internally at our venture fund we call them “chimeras”, pronounced singularly a “ky-MEER-ə”.

What is a Chimera? A Chimera is a Greek mythical creature composed of multiple types of animals, often shown as a mixture of a lion, a goat, and a snake (see graphic above). In biological terms, a chimera is an organism containing a mixture of genetically different DNA and cell types.

If you google a “chimera” you’ll see images like these below. Not nearly as cute and cuddly as a unicorn:

Our investment team evaluated a large number of mythical creatures to find the best one that would match the characteristics of a company worth $1+ Trillion. Some of the most common characteristics of chimeras include: they are platform plays, in that they sell more than one thing, across multiple industries, their customers include both consumers and enterprises, and they often have both physical and digital solutions.

In fact, due to the physical limitations of the market size dynamics present on Earth today it is almost mathematically impossible to achieve the chimera $1+ Trillion valuation without having both consumers and enterprises as customers (trust us, we did the math, see the three Matrixes below). There are just not enough current humans or enterprises in existence today for a company to be worth $1+ Trillion if it were to just focus on one of these customer types.

Additionally, these chimeras have done a decent amount of acquisitions, and are some of the biggest acquirers of unicorns, absorbing them in different ways into their DNA. Sometimes they acquire them for their talent and absorb them into their organizations, leaving little remains of the original acquired entity. Other times the businesses they acquire continue to operate as a separate yet connected entity. For these reasons above, our team found that the “chimera” is a strong metaphor for an entity that represents a platform made up of multiple things, and supports the characteristics required to achieve the scale of a $1+ Trillion valuation.

Here is a list of the 6 current Chimeras, as of Aug 2021, which have market capitalizations of $1+ Trillion, and with some additional stats on enterprise value (Market cap + Debt - Cash), Revenue, Enterprise Value / Revenue (Revenue Valuation Multiple), Gross Margin, and EBITDA Margin:

Our team also put together a list of the next top 100+ companies by market capitalization to evaluate and better understand the nature of the largest public companies created by human civilization to date. Below is the comparison of the stats between the chimeras vs. the next top 100 companies by market cap.

The Chimeras vs. The Top 100+ Companies By Market Cap

Interesting Insights:

Tesla is currently the 7th largest company by market capitalization at ~$700B+ and is the first non-Chimera on the list of the next top 100 companies by market cap. Based on Tesla’s valuation it’s the next up to become a chimera, but if it crosses the $1+ Trillion line, it will be a chimera of a different breed. Tesla’s revenue multiple (Enterprise Value / Revenues) is significantly higher than the average current chimeras at 16x vs. 7x (as it’s earlier in its maturity) and has a lower Gross Margin profile at 22% vs. 59% (given the nature of its business being more physical than digital). Tesla’s EBITDA Margin is also materially lower at 14% vs. the average chimera is at ~41%, but that’s likely because it’s reinvesting more into itself than the current chimeras do, with the exception of Amazon which also has EBITDA Margins of around ~13%. Amazon has a strong track record of reinvesting in itself and has also proven that it has no shortage of ideas for how to become greater than itself.

Berkshire Hathaway is currently the 8th largest company by market capitalization at ~$645 Billion, but has an enterprise value of $1+ Trillion, as it is more greatly impacted by the enterprise value calculation: Market Capitalization + Debt - Cash.

Enterprise Value / Revenues: Shopify is the biggest outlier at ~47x revenues. The 6 next biggest are between ~20–24x revenues (NVIDIA, Prosus, Visa, Moderna, Mastercard, Adobe), followed by the 10 next biggest at ~11–19x revenues. The vast majority, 80%+ of the top ~100 companies by market cap, including the majority of the chimeras, have revenue multiples of ~1–10x, and within this range it is largely influenced by their quality of revenues: one time revenue vs. recurring revenues, revenue growth, and gross margin.

Here is the link to the data set we created at the end of August 2021.

Here is a link to a live data list of the Top 100 companies by Market Cap.

Understanding Market Size Dynamics & Future Valuation Potential

As venture capitalists, we have the rare job of seeking out massive market opportunities at their earliest stages. As a general rule of thumb, VCs look for market size opportunities of $10+ Billion, and this is in terms of TAM, the Total Addressable Market, often generalized and often a global market number.

At our venture fund we prefer $10+ Billion SAM’s, the Serviceable Addressable Market, over $10B+ TAMs, as SAMs are often more well defined as your geographic target market focus and your core target customer demographic. In our view, you will likely get acquired or IPO well before going after your TAM, so TAM is a less meaningful number to us as a venture fund. TAM is also often an overstated number by founders in its relevance to the actual business opportunity they are working on. SAMs are more grounded in the revenue potential of your true target customer market size and is a number that should be able to be easily approximated using a simple equation: # of potential customers that exist (now or in the future) x how much you make in revenue on average per customer per year.

Here are two simple SAM examples:

Renting bridesmaid dresses = ~2.5 million weddings a year in the U.S. x ~5 bridesmaids per wedding x $150 dress rental = $1.875+ Billion.

Selling bed mattresses = ~132 million U.S. households x ~2.5 beds per house × ~$1,000 per mattress / replacing a mattress every ~8 years = $41.25+ Billion.

These two SAMs are 22x different in size. That’s a big difference in terms of market size opportunity. These SAMs represent how big either company can grow in terms of future revenues if they acquired 100% of the market. If either company could only acquire 1% of their respective markets in ~5 years then they would get to $18.75M vs. $412.5M in revenues.

The simplistic reason why VCs target $10+ Billion market size opportunities is because a ~1% market penetration is equivalent to ~$100M+ in revenues. If a company believed they could acquire 1% of the market by year 5, then this $100M+ would be the SOM, the “Serviceable Obtainable Market”. The SOM is often shown as the revenue goal of the company at the time of exit via M&A or IPO.

Using a ~1–10x revenue multiple, a conservative revenue multiple range for most companies including the majority of the chimeras and the next top 100 companies by market cap, a company with $100M+ in annual revenues would be worth ~$100M-$1B+ in enterprise value and would be the estimated exit value via M&A or IPO.

If you’re a VC/PE investor investing in a company at a $10M valuation and the company exits at a $100M-$1B+ valuation, you would get a 10x-100x return prior to the dilution from future rounds of financing. That’s the simple math of a venture capitalist and private equity investor!

One notable exception to the general rule of using a ~1–10x revenue multiple range is that fintech companies often trade at an average range of ~10–20x revenues. However most one-time product sale companies trade at ~1–3x revenues, recurring revenue businesses trade at ~4–10x revenues, and within these ranges they are influenced heavily by the quality of the revenue in terms life-time value of the customer, revenue growth, and gross margin.

A company usually requires multiple rounds of financing to grow before it achieves an exit via an M&A or IPO. VCs can more conservatively predict the potential return multiple of a particular opportunity if they estimate each future round of financing will be ~20% in dilution, which includes the dilution from new investors and any increases to the employee equity option pool (known as “ESOP”, the employee stock ownership plan).

Here’s a great math trick for estimating equity dilution for founders and investors: After 3 financing rounds of dilution at ~20% each you will have ~50% of your initial ownership.

Math example: If you start with a ~10% ownership stake * 0.8 (the 1st follow-on round with a ~20% dilution) * 0.8 (the 2nd follow-on round with a ~20% dilution) * 0.8 (the 3rd follow-on round with a ~20% dilution) = 5.12% ownership, which is ~50% of your initial 10% ownership. Therefore a VCs initial 10–100x return potential will become a ~5–50x return potential after three additional rounds of financing at ~20% dilution each.

Early stage VCs target a 10x+ return on each investment, inclusive of dilution. Companies only capable of growing up to an enterprise value of ~$100M are not ideal opportunities for VCs to invest in. If a VC invests at a $10M valuation and the company exits at a $100M valuation then prior to the dilution from any future rounds of financing the investor would make a 10x return. However most companies require multiple rounds of financing to significantly grow revenues. If a company requires a second round of financing to grow then the 10x return potential becomes a 8x return potential (assuming ~20% in dilution), and if a company requires a third round of financing to grow then the 8x return becomes a 6.4x return potential (assuming ~20% in dilution), and if the company requires a fourth round of financing to grow then the 6.4x return becomes a 5.12x return potential. This is your non-pro rata return, assuming you don’t invest in the follow-on rounds, and don’t maintain your ownership. If you did participate in the follow-on rounds to increase or maintain your ownership amount then your return would still be <10x, as you would have invested additional capital at a valuation likely higher than initial $10M valuation, bringing down your average return multiple per dollar invested.

Remember, as an alternative option, investors can always invest in real estate for significantly less risk and get a consistent 2–3x return every 5–7 years. So for a VC to make an investment a company needs to be capable of returning 10x+, inclusive of dilution, to be worth the high risk of investing in an early stage company, and there needs to be a large enough market size opportunity to make a 10x+ return possible.

So what does it take to create a company worth $100+ Million to $1+ Trillion? Let’s take a look at the math!

Below we built three matrixes to show the difference in the scale of market size opportunities for companies to be worth $100+ Million (a “horse”) vs. $1+ Billion (a “unicorn”) vs. $1+ Trillion (a “chimera”):

• Matrix 1 - Range of Revenues: Enterprise Value vs. Revenue Multiple
• Matrix 2 - Range of Revenues: Market Size vs. Market Penetration
• Matrix 3 - Range of Customers: Revenues vs. Avg. Revenue per Customer Per Year

Matrix 1 - Range of Revenues: Enterprise Value vs. Revenue Multiple

For a company to have an enterprise value worth $1 Billion, a “unicorn”, using a 1–10x revenue multiple, it would need to be doing $100 Million in revenues with a 10x revenue multiple, or be doing $1 Billion in revenues with a 1x revenue multiple, and everything in between (e.g. $200M in revenues using a 5x revenue multiple).

For a company to have an enterprise value worth $1 Trillion, a “chimera”, using a 1–10x revenue multiple, it would need to be doing $100 Billion in revenues with a 10x revenue multiple, or be doing $1 Trillion revenues with a 1x revenue multiple, and everything in between (e.g. $200B in revenues using a 5x revenue multiple).

The magnitude difference between a company worth $1 Billion vs. $1 Trillion is 1,000x. That’s huge.

As a point of reference, the smallest company of the next top 100 companies by market cap after the chimeras has an enterprise value of $122 Billion.

An acquisition enterprise value of $100 Million to $1 Billion is roughly 0.1–1% of the enterprise value of a $100 Billion company. If you’re a chimera or one of these next top 100 largest companies by market cap, then acquiring a company for $100M-$1B is more like eating an appetizer than an entrée at ~1% or less of your total enterprise value.

While exiting at $100 Million to $1 Billion valuation can be great for founders and investors, exiting at $1 Billion to $10 Billion valuation is even better! If you’re investing out of a $100 Million venture capital fund and you have a 10% ownership stake in a company that exits at $1+ Billion, then you’ve returned the entire fund! Congratulations! If the company had exited at $10B+ you would have 10x’d your fund from just one company in the portfolio.

A good rule of thumb for VC investors is that each portfolio company should have the potential of returning 25%-100% of your entire fund on a fully diluted pro-rata basis. This way you only need 1–4 exits to return 1x the fund, and the rest of the portfolio companies can then return greater than a 1x fund.

Companies capable of $100 Billion or more in revenues are on an entirely different scale in terms of the size of the market opportunity they are addressing, and with a 1–10x revenue multiple can be worth $100+ Billion to $1+ Trillion. The smallest of the current chimeras in terms of revenues is Facebook with ~$104B in revenues and trading at a ~9x revenue multiple to get to its ~$1+ Trillion dollar valuation.

Matrix 2 - Range of Revenues: Market Size vs. Market Penetration %

If a company executes well it may be able to achieve a ~1% market penetration of its target market, and if it really hits it out of the park it can get an even larger market penetration. Remember that even a ~5% market penetration means a company has acquired 1 in 20 customers in its target market, which starts sounding quite high. So often it takes thinking like a monopolist to even acquire ~1% of a large market opportunity.

VCs often look for companies with target market sizes of $10+ Billion, where a ~1% market penetration equals $100+ Million in revenues. It’s a useful initial threshold to keep in mind.

As a point of reference, at our venture fund, most of our portfolio companies are going after market size opportunities that are between $10 Billion to $100 Billion. We require our investment team to present a simple math equation during our investment committee to understand the logic behind the market size opportunity. The simple math equation is: Market Size = the # of potential customers (now and in the future) x the average revenue customer per year = $10+ Billion. If a company’s market size is less than $10B, then the investment team needs to explain why they believe it is possible to get significantly more than a 1% market penetration to still achieve $100+ Million in revenues at the time of exit.

As a founder you need to be able to show how this simple math works for your company and supports the target market size you include in your pitch deck. Don’t reference a general research report that says the market size is $XX+ Billion, because it’s highly likely that that number is not based on your company’s number of potential customers multiplied by your company’s revenue per customer per year. Let’s discuss relevant numbers!

Interesting factoid: The largest known market size on Earth is currently real estate at ~$280+ Trillion. The future may change this, as the digital world could create assets worth the same or more than all physical real estate assets combined. A market size of ~$280+ Trillion makes the initial $10+ Billion threshold that VCs look for seem like peanuts. The magnitude difference between a $10 Billion market size and a $1 Trillion market size is a 100x, and a $100 Trillion market size (~1/3 of Real Estate’s $280+ Trillion) is a 10,000x+ difference. So think big founders. Think big!

Matrix 3 - Range of Customers: Revenues vs. Average Revenue per Customer per Year

Mathematically it’s very difficult to achieve an enterprise value of $100B-$1T+ without addressing both consumers and enterprises as customers, as there is a finite number of humans and companies that exist on Earth that can become customers of a company. The population on Earth in 2021 is currently ~7.9B, and estimated to grow to 10.9B by 2100 over the next ~80 years, at which time it may level off or decline going forward according to a study by the United Nations.

The upper limit of market size opportunities can grow beyond the growth of the human population as individuals become their own businesses too (the “gig economy”), increasing the volume of businesses to sell to. The maximum size of a market could increase even further, even with human population decline, if digital twins or AI entities can become their own customers and businesses. We know, it sounds crazy, but it’s possible, and it’s already happening! So…

The Future Chimeras

You can take a contrarian perspective and say that the future trillion-dollar companies will look nothing like the current chimeras we have today, the majority of which are currently digital first companies (the world of bits), and say they will look more like companies made out of atoms.

Tesla could be an example of this. Future trillion-dollar companies may also be energy companies that do nuclear fusion, resource companies that do asteroid mining, or companies that do real estate construction and manufacturing in space (as there is more outer space for building real estate than on Earth) — all possible, and are all market opportunities that our fund has explored and/or invested in.

Regardless of whether a company sells a digital or physical-based product, or the combination of the two, the point about the importance of market size is the same. A company worth 1+ Trillion has to be addressing an extraordinarily large market opportunity that impacts a very large population of customers. The number of customers required to reach a $1+ Trillion valuation will be determined by the revenue model used, which will be either a high-price low-volume play or a low-price high-volume play, or both, and the company’s revenues will then be multiplied by a revenue multiple to arrive at its valuation.

VCs are unicorn hunters. They are seeking to invest in companies that can be worth $1+ Billion in the future. They target 10x-100x+ returns, and this can be achieved by investing initially at the ~$10M-$100M valuation range, and the companies exiting in the ~$100M-$10B+ range. The bigger game however is to focus on investing in companies that have the potential to exit at $10+ Billion valuations and that requires going after market size opportunities significantly greater than the initial VC threshold of $10+ Billion.

Now to be fair, you can build a VC portfolio with solid 10x+ return exits with less than $1B future exit valuations, but you need to invest early enough where the valuation is low enough to make that happen. Example: We invested in Bear Flag Robotics at a $27M valuation, and 14 months later it exited at a $250M valuation, with no dilution in between, yielding a ~9x+ return in a short period of time. Doing this consistently in such a short time frame is quite rare and wouldn’t be something you would project to happen, although top investors often invest in a higher volume companies where this does happen.

Our fund for example has had three exits recently which were positive exits between 1x+ and ~10x returns within roughly ~12 months of investing in each company, yielding a ~5%, ~17%, and 650%+ IRR. For some of these companies, we would have certainly liked the company to grow for a longer period of time, to reach larger milestones, and exit for larger amounts, but a win is win at greater than a 1x return in VC, and sometimes Founders get early offers for acquisition that they have a hard time resisting.

VCs love investing in companies that have quote “IPO potential”. We are not in the VC business to focus on “quick flips”. When a founder pitches their company as a quick flip for a 2–3x return, that’s usually great for them, but a turn off for us. When a company has “IPO potential” it means the company is going after a market size opportunity that is so large that if it executes successfully it could become so big that there will be few potential acquirers large enough to effectively acquire them. The only way then to create liquidity for prior investors and founders and to continue to grow larger is as a public company.

When a founder is focused on getting their company acquired by a larger company, that’s an admission of the Founder saying that what they are building has large potential, but not huge potential. They are saying that the best projected future for the company is being a latch on entity to a larger company. Companies that have huge potential do IPOs, and they then do the acquiring of other companies as they continue to grow larger. Eventually, if they can grow large enough, they become the chimeras eating unicorns for lunch.

Unicorns received their name initially for being quite rare as a mythical creature, and not for how cute they are, though that helped. As new unicorns are being minted at an increasing rate, unicorns are not as rare as they once were. At our fund, VU Venture Partners, the three investment partners, including myself, have been some of the earliest and largest investors in 10+ unicorns. We live in a reality where there are likely many more unicorns to come, many of which we believe are in our current portfolio, especially as companies become more capital efficient and are able to go after larger market opportunities (e.g. the space industry, biotechnology, robotics, AI, etc.), have increasing access to capital at all stages and scales, and as the speed of innovation continues to increase.

The north star for massive opportunities is no longer “to become a unicorn”, it is “to become a chimera”, and it’s only fitting that one of the definitions for a chimera is “a thing that is hoped or wished for, but in fact is illusory or impossible to achieve.” We now know that chimeras too, just like unicorns, are possible! That bodes well for the future, as there are likely larger opportunities than the ones that the chimeras of today have chosen to focus on. Some of these larger market opportunities may be areas that the current chimeras move into. The current chimeras reign supreme and seem to be on track to only grow larger, that is unless the government breaks up such extreme multi-headed beasts into separate entities by deciding that something so powerful shouldn’t exist as a single entity.

The Short History Of The Largest Companies

How has the maximum value of companies changed over time? In 1901, US Steel was the first U.S. company to hit a $1+ Billion dollar valuation when it went public. It took 95 more years for General Electric to hit another milestone, the $100+ Billion mark, four years later Microsoft hit $500+ Billion, and 117 years after the first U.S. billion-dollar company, Apple in 2018 reached a market cap of $1+ Trillion dollars. It is clear that the growth of companies is not a linear function, but instead growing exponentially.

It is interesting to note that the rate at which the S&P 500 companies are getting replaced by new larger players has continued to increase. In the late 1970’s the average tenure of an S&P 500 company was 30–35-years and it is now forecasted to shrink to 15–20 years this decade.

Identifying & Investing In The Largest Market Opportunities

So what is the secret to identifying and investing in a company that could be worth $1+ Billion to $1+ Trillion? That’s why we created Venture University, the world’s leading investor accelerator for venture capital, private equity, and angel investing. We train the future investing leaders in the VC/PE industry the art and science of deal sourcing, due diligence, and investment execution as well as developing the investment thesis for each company covering market sizing, competitive landscaping, unfair and sustainable competitive advantages, business model analysis, financial modeling, exit waterfall analysis, etc.

Venture University’s senior investment team has previously invested as some of the earliest and largest investors in 10+ unicorns, such as Beyond Meat, Twitter, Uber, FabFitFun, Palantir, Oculus, Oscar, Wish, and were also an early investor in a chimera (e.g. Facebook). Each quarter our investment team goes through the process of competing ~5,000+ companies against each other (~20,000+ companies per year) to identify the largest market opportunities. This process concludes with us making ~3–5 investments per quarter, ~18 investments per year, at a ~0.1% selectivity, and 10x more selective than an average venture capital fund.

What Is The Most Important Characteristic When Evaluating Opportunities?

The most common MBA student answer to this question is “team.” Even VCs with little VC experience, especially those with MBAs, will also often shout the answer “team” quite proudly. It’s an appropriate ego answer for individuals with MBA degrees, as they are the future ladder climbers within large organizations, and who focus mainly on maintaining, improving, and growing something that is already working and large. The product-market fit has already been well established, along with validating the market size, and potentially already has meaningful market penetration. “Team” is a great answer for private equity fund investors and large corporations for what they need to focus on to continue being successful.

For venture capital funds “team” is certainly a top criteria, but it’s often the #2 criteria, not the #1 criteria, especially when asking VC legends with more experience and wisdom. Here is a link to a video of Don Valentine, founding General Partner at Sequoia Capital, discussing his view on why market is more important than team. In simple terms, a VC would rather invest in an A+ market opportunity and a B+ team, than a A+ team and a B+ market, because even the best executors of a small to medium size market opportunity cannot yield a huge exit valuation, but a B+ team and a A+ market can get lucky, and the luck seems to improve the larger the market opportunity is. Obviously having an A+ market and an A+ team is ideal, but when considering the magnitude difference of market size opportunities vs. the magnitude difference of how capable people are in executing, it’s even more clear. The range of potential market sizes that a company could go after is significantly greater than the range of the execution capabilities of humans. The size of a market significantly limits the revenue potential a company can achieve and its future exit value, however the team still has to execute on the opportunity.

Venture Capital is a game where pre-revenue companies, and sometimes even pre-commercial ready solutions, are able to be acquired for $1+ Billion within short periods of time from being founded. Not much team execution here. The final exit valuation of a company is often more heavily weighted towards the market size potential from the acquirers perspective. An acquirer or the public markets will consider how much a company can grow into a market to arrive at a valuation, which will produce what seems like either a highly rational revenue multiple (tied to comps) or produce a highly irrational revenue multiple if the company is pre-revenue or very early in commercialization (as there is little to no revenue to multiply a revenue multiple against). The team still has to do an effective pitch to sell the opportunity to investors and to the acquirer, certainly needs to execute on the opportunity, but the size of the opportunity is the opportunity that is being sold, not the team, especially given that founders often leave after ~1–3 years working at the acquirer.

At first blush all market opportunities can seem quite large, but only after evaluating a company’s actual market size and comparing it to the full spectrum of market sizes, does it become clear if a market size opportunity is small, medium, large, extra large, huge, giant, unicorn, or chimera level.

Other Nuances To Market Size Characteristics Include:

• Market Timing: Is the market big now vs. big in the future? Being wrong on market timing is the same thing as being wrong. If the large future market never arrives into the present time, you won’t be able to execute a business beyond development work. So the question will be how long can you burn cash for until the market arrives and will investors be willing to provide you the cash runway to get there. Go get some of that “patient capital”!
• Market Growth Rate: Increasing, stable, or declining.
• Ability To Grow The Size Of The Market: A company that can unlock a market and make it bigger than what it is today is powerful. Think Uber for the taxi industry, Apple for creating the demand for a tablet (iPad), or any company that can solve the gap between demand and supply. If more supply is provided to a market that has more demand than the current supply (e.g. lab growing organs or cryogenically freezing organs to solve the shortage of organ to be used in transplants), the market size grows. If more demand is provided to a market that has more supply than the current demand (e.g. Uber for taxis), the market size grows.
• Ability To Expand Into New Geographies.
• Ability To Expand Into New Horizontal Market Opportunities.
• High Market Penetration In Small Markets: This is the rare exception to the $10B+ SAM target metric, where with a ~$1B-$5B market you can still get to a $100M+ in revenues, but it requires that you have a 2–10% market penetration.

Special thanks to the team at VU Venture Partners and cohort members of Venture University for helping to brainstorm and edit this article.